Roth IRAs and inflation-protected securities
Friday, April 14th, 2006
Categorized as: Savings Bonds and competitive investments • Series I US Savings Bonds • TIPS
Can I buy a Series I Savngs Bond through TreasuryDirect as a Roth IRA? If not, how do I purchase an I bond or TIPS and establish a Roth IRA with it?
Tom’s response
TreasuryDirect doesn’t allow for any type of IRA registration. Legacy TreasuryDirect doesn’t support Savings Bonds, but in theory does allow for IRA registrations. It’s also technically possible to register paper Savings Bonds to an IRA. However, you still need a financial institution to act as custodian or trustee of the IRA and I’ve yet to find one that will do that for paper Savings Bonds.
If TIPS will work, you have two choices. First, you can set up a Roth IRA with a mutual fund company that has a TIPS fund and invest the Roth money there. This choice is typically better for new or small Roth IRAs because of lower initial investment requirements.
The other option is to set up a self-directed Roth IRA with a brokerage firm and then invest the Roth money in TIPS. This choice is typically better for larger Roth IRAs. With this option you can invest directly in TIPS, in a TIPS mutual fund, or in a TIPS exchange traded fund.
An example of a TIPS mutual fund would be
Vanguard Inflation-Protected Securities (VIPSX). A TIPS exchange traded fund is iShares Lehman TIPS Bond (TIP).
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Tom Adams
I wrote to the Dept. of Treasury and asked about putting I-Bonds into a Roth IRA. This is the email I got back:
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George,
Series I bonds can be issued to a Roth IRA. To initiate an IRA, you should consult a bank or other financial institution that can act as the trustee or custodian of the IRA and is willing to accept savings bonds to fund the account. Once the IRA document, essentially a trust document, is established, securities can be purchased in the name of the IRA.
The trustee or custodian of an IRA is almost always a bank. The bank’s EIN must be used, not the customer’s SSN. The fiduciary for an IRA may be referred to either as a trustee or a custodian. An IRA participant may not ordinarily serve as the trustee/custodian of his/her IRA.
If you have additional questions, please contact us.
Jeanette
Customer Service Specialist
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The rules do not say that you can’t hold a Series I bond in a Roth IRA. I wonder if a non-profit could be set up to become the custodian or trustee for folks? All that is needed is an EIN and a secure database.
George - I stand corrected and have edited this post. The problem of finding an IRA trustee who will invest in Savings Bonds remains.
Tom Adams
I agree with Mr. Adams that it will be very difficult to find an IRA trustee to hold I Bonds in an IRA because there is no profit incentive for the trustee to do so. In fact, there is an annual cost for the custodian to be the trustee with no income to warrant it. If George or anyone find such a company, many of us would like to know under what circumstances that company would accept the responsibility.
Jim