Upon further review it seems Illinois does not tax any form of retirement income, so no state tax on TIPS income regardless of whether held in taxable or non-taxable if I'm understanding correctly.I hadn't even thought about the state tax angle on this. I live in Illinois so 4.95% tax rate (flat tax). I should be in the 24% marginal federal tax bracket for 2024. Does TIPS Phantom Income count as ordinary income for federal tax purposes? I would think it would, so tax exempt for state tax purposes if held in taxable account, right?If you live in a high income tax rate state, it is better to hold them in taxable. If you hold the tips in tax deferred you pay state tax on the interest when you withdraw. If you hold them in taxable, you will not pay state tax. Last I checked, the usual state tax ate here in California is about 9.3%, but it can go over 12%.
It seems like every time I start looking into TIPS the analysis ends up more complicated than my going in thinking (and let's not even talk about the OID tax impact from a secondary market TIPS).
Statistics: Posted by nassau34 — Wed Mar 20, 2024 1:08 am