[jea]

As for the taxation of T bills, remember they are taxable at the federal level. Those people wouldn't give us a dime without an associated tax! That's another reason for not holding them in an IRA although there's a fund, TBIL, that invests in them.

My 401(k) (same as IRA) is completely invested in a treasury money market fund at Vanguard. All of the earned interest is tax deferred (rolls back into the account). I pay no tax now.

 

[jea]

@citykittyatheart, funny you posted this today. I just purchased my first T-bill on TreasuryDirect.com last week (issue date was today). Like you, I put a small amount in ($1000 4-week T-Bill). Was thinking they'd take $1000 out of my checking account and I'd get that back plus interest. But it was actually $995.87 that was invested. When it matures in 4 weeks, I'll get $1000. That's a $4.13 gain over 4 weeks. I figure that works out to about a 5.3% annual gain. The published auction results say that the rate is 5.237%. So all looks good.

The rate difference between the 4, 8 & 13 week bills isn't much at all. Going forward, I plan to buy 4-week T-bills whenever I see there will be some excess in my checking account for a period of time. My primary savings is a money market at Vanguard which invests in the same thing - government debt. They're paying about 5% interest right now. But buying the T-bill directly and getting the principle plus interest put back into my checking account avoids my having to move money back and forth to my Vanguard account. I can do it all with a single transaction on TreasuryDirect.