Picking up Nickels

Thursday, April 18, 2019

March CPI-U numbers released: Meh on April 2019 issue I Bonds

The U.S. Bureau of Labor Statistics released the March 2019 Consumer Price Index (CPI-U) inflation data last week, which increased by 0.56% last month.

As always, now (along with the release of the September CPI-U) is one of the best times to consider purchasing I Bonds. The reason for this is that we now know what the rate of return for April 2019 I Bonds will be for both the first and second six month periods, which is important since I Bonds must be held for 12 months before they can be redeemed.

Using the CPI-U data from September 2018 (252.439) and March 2019 (254.202) (courtesy of inflationdata.com), we can calculate the variable rate for the second 6 month period for April 2019 issue I Bonds.

That means these bonds would earn a composite rate of 2.83% (using 0.5% fixed & 1.16 variable) for the first 6 months and 1.90% (using 0.5% fixed & 0.70% variable) for the second 6 months. Based on this, April 2019 issue I Bonds are underwhelming when compared to something like the 12 month CD @ 2.85% APY currently being offered by Citizens Financial Group.

Due to the 0.5% fixed rate (the highest since November 2008), I personally maxed out my 2019 annual I Bond allotment in January while redeeming some older ones with a 0% fixed rate. I also elected to take the bulk of my 2018 Federal tax refund in the form of April 2019 issue paper I Bonds, so I'm already maxed out for this year.

Thursday, April 11, 2019

April 2019 Financial Asset Roundup

Here are my current financial assets as of the market close on April 10th, 2019:

Asset Mar
Checking 2,620 1,308 -1,312
Money Market 50,361 44,346 -6,015
Savings Bonds 156,149 156,523 374
Treasury Bills 15,000 20,000 5,000
CDs 57,977 58,163 186
Brokerage 177,764 176,919 -845
401k 183,217 191,993 8,776
Roth IRA 153,463 163,861 10,398
SEP IRA 769,998 794,235 24,237
529 Savings 175,815 178,640 2,825

Total Assets $1,742,364 $1,785,988 $43,624

The market has continued to rise since the last update, with the S&P 500 up 3.46% during that time:

(chart courtesy of nasdaq.com)

On the jobs front, the unemployment rate for March remained at 3.8%, with 196,000 new jobs created. Oil prices have continued to rise to the $64 level (+11.5%), which has translated locally to unleaded regular gasoline prices rising about 20¢ per gallon.

On the financial front, my assets have once again hit another all-time high, surpassing the previous high from March 2019. I've once again rolled my maturing 28 day T-Bills (plus a little extra) into new ones with an investment rate of 2.434% and will continue to do so as long as the yields stay competitive. And as mentioned last week, my personal tax returns are done (with some of the Federal refund in the form of paper Series I savings bonds) along with 2018 Roth IRA contributions for Mrs. Frugalson and myself. I'll also figure on taking a distribution from my S Corp before the next update.

Another topic that I'd like to touch on is the March 2019 CPI-U release yesterday and what that means for I Bonds (I'm hoping to try to get to that soon in a separate post). Another decision I made in light of capped SALT deduction due to the tax cut is to start throwing some additional cash at our mortgage. I've never been in a rush to pay it off, but we're about halfway through a 15 year mortgage with a relatively modest balance, so why not retire it for good? I'm guessing that we can take care of it in about three years if Mrs. Frugalson and I are healthy and working.

As for the non-financial, lawn season is officially here! I've done my yard cleanup, have sent in a lawn soil sample for analysis, and will be applying my pre-emergent herbicide shortly. I'm looking forward to everything greening up and enjoying the mow. :)

Wednesday, April 03, 2019

The Tax Cuts and Jobs Act (TCJA) and Me

My 2018 personal returns are in and I wanted to share how my numbers turned out courtesy of the new tax cut.

First, let’s take a look at the pre-TCJA situation for my 2017 return. Once the details came out in late 2017, I figured it was my final opportunity to itemize my deductions so I did all of the following before 12/31/17:

  • Paid all assessed property taxes due in 2018
  • Doubled up all planned charitable contributions
  • Paid an extra mortgage payment
  • Increased final 2017 estimated state tax payment
When all was said and done, we were MFJ topping out in the 25% tax bracket and our effective tax rate (total tax/taxable income) ended up at 18.4%. At our MAGI I was able to max out my employer SEP IRA contribution and Roth IRA contributions for Mrs. Frugalson and myself.

Once we hit 2018, I tried to switch gears to a more TCJA-friendly approach where possible:

  • Greater emphasis on business profit over salary due to the Section 199A 20% qualified business income deduction (QBIC)
  • Change my work retirement plan to a solo 401k to help maintain or exceed employee/employer plan contributions allowed with my old SEP IRA
  • Reduced charitable contributions due to extra giving in 2017
As it turned out, our 2018 AGI actually decreased ~1.5% due to increased retirement plan contributions, but our taxable income increased by about 2.4% with the switch to the standard deduction (minus the QBIC) and the loss of personal exemptions. We topped out in the 22% tax bracket and were able to qualify for child tax and education credits in 2018, giving us a 13.4% effective tax rate (a 5% reduction). At our MAGI we were still able to max out Roth IRA contributions for Mrs. Frugalson and myself and I was able to make a healthy contribution to my solo 401k.

Obviously, a 5% tax cut is nothing to sneeze at, but we will lose $1500 of the child tax credit in 2019 as the youngest Frugalson will age out of it. I’m hoping to qualify for a bigger bite of the American Opportunity Credit this year with increased retirement plan contributions, but that can be hard to gauge with unpredictable business income. Finally, I’ve also started to rethink our charitable contributions in terms of gifting appreciated shares of stock directly to charities instead of cash gifts since we can no longer itemize our deductions.

That being said, I have to admit that I am not a fan of this tax cut despite the immediate financial benefit it provided me for 2018. The previous tax rates were already at historic lows, and our debt and deficit problems were already getting worse before this tax cut. I could certainly get behind something like this if we were in a recession and needed short term financial stimulus, but unemployment was already very low and corporate profits were already very high when the TCJA was passed. I expect tax receipts to fall and figure it’s only a matter of time before our friends in Washington will be looking to “reform” (i.e. cut) my future Social Security and Medicare benefits to pay for it. Thanks guys! ;)