The tax deferral for 3 years on an I-Bond isn't worth much, and you would lose three months of interest when you redeem it. You might as well just use a short-term TIPS fund with a higher yield if you want inflation protection.There are some mmf's that may help lessen the taxes and Ibonds can defer interest for 2-3 yrs.
Also, while money-market funds can lessen the taxes, they won't do much for after-tax returns unless you are in a very high tax bracket, either federal or state. If you pay very high state taxes, you can likely get a somewhat better after-tax return from a Treasury-only fund which is exempt from state tax. If you pay very high federal taxes, you should get a better return from a muni fund, and still better if there is a muni fund for your state.
For the OP in a 24% federal and 4% state bracket, there isn't likely to be much difference in after-tax returns; if they do use a money-market fund, I would just use whatever is low-cost and convenient in their brokerage.
Statistics: Posted by grabiner — Sun Jan 14, 2024 9:30 am