T-bills are short-term bonds sold by the U.S. Treasury Department. An Individual Retirement Account (IRA) helps consumers save money for retirement in a tax-favored structure recognized by the Internal Revenue Service (IRS). There are no restrictions for buying T-bills in an IRA, though you should consider the benefits and disadvantages of doing so.
Conservative Investment Option
A conservative investor seeks to preserve capital assets. If you are conservative, you seek investments that either offer guaranteed rates of return, provide moderate fluctuations in principal or have a federal or insurance guarantee of some sort. The T-bill meets the objectives of a conservative investor. The T-bill is guaranteed by the full faith of the federal government. The T-bill provides a fixed rate of return as long as the bill is held until maturity. Should the T-bill assets be needed prior to maturity, the fluctuations for selling it on the secondary market are often minimal.
A T-bill is a treasury bond that has a duration of less than three months. Short-term investments have lower interest rates compared to longer term investments. Therefore, the T-bill is not suitable for an investor wanting to get as much as possible for assets. However, an investor seeking to "park" assets in a short-term vehicle, while waiting to liquidate or place them in a different investment, may find T-bills a suitable option. In the T-bill, some interest is earned in the interim.
Now that you see why someone would or would not buy a T-bill in general, consider whether it is appropriate for an IRA investment. If you are not taking distributions from the IRA, there is no reason to look at short-term investments unless you are parking assets. The money can grow in the IRA as much as you want without any concern over annual tax issues. Parking it in higher paying investments helps grow assets. However, if you are conservative and feel that existing long-term interest rates are low, parking your assets in a short-term T-bill gives you a time frame to re-evaluate the long term rates within weeks or a few months.
An investor seeking to keep assets in conservative liquid scenarios within an IRA should explore laddering T-bills and Treasury bonds. Laddering is a method of having different bonds with staggered maturity dates. The staggered maturity dates help an investor get higher returns in long-term bonds while keeping a certain amount maturing on a regular basis in the event distributions are required. The staggering method helps maintain a conservative, liquid portfolio in the IRA.
- Treasury Direct: Treasury Securities & Programs
- Internal Revenue Service: Publication 590 IRAs
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- U.S. Department of the Treasury. "Daily Treasury Bill Rates Data." Accessed Aug. 1, 2020.
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- Corporate Finance Institute. "Treasury Bills (T-Bills)." Accessed Aug. 1, 2020.
- The New York Times. "The Fed Goes All In With Unlimited Bond-Buying Plan." Accessed Aug. 1, 2020.
- Federal Reserve Bank of San Francisco. "What makes Treasury bill rates rise and fall? What effect does the economy have on T-Bill rates?" Accessed Aug. 1, 2020.
With more than 15 years of professional writing experience, Kimberlee finds it fun to take technical mumbo-jumbo and make it fun! Her first career was in financial services and insurance.