Tax Playbook · Investment tax wins
TIPS: the phantom-income catch
TIPS raise their principal when prices rise, which protects your buying power. But you owe federal tax on that rise each year, even though you do not get the cash until the bond matures. That tax on money you have not received is called phantom income. Holding TIPS in a retirement account can avoid the yearly tax bill.
Good for: Anyone who owns TIPS in a taxable account.
Learn the basics
- Treasury Inflation-Protected Securities — TreasuryDirect
- Investing Directly with the U.S. Treasury — TreasuryDirect (PDF)
Recent articles & guides
- TIPS and phantom income — HB Wealth
- TIPS phantom income explained — AllianceBernstein
- TIPS primer and tax inefficiency — Independent Vanguard Adviser
- TIPS risks and phantom income — Clark
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Educational summary, not tax advice. Limits and rules change — confirm current law with your tax adviser.