With higher interest rates, many retirement investors have turned to investing in Treasury Bills to hedge against inflation.  T-Bills provide a safe investment option with little downside. This article will explain what a Treasury Bill is and how it compares with I-Bonds.  It will then explore how to use a Self-Directed IRA or Solo 401(k) plan to buy T-Bills.

What is a Treasury Bill?

Treasury Bills are different from U.S. savings bonds; EE Bonds, I Bonds, and HH Bonds are U.S. savings bonds. Treasury Bills (or T-Bills for short) are short-term securities that mature within a year and pay less interest than T-bonds  Whereas, Treasury bonds are considered long-term debt securities, maturing 30 years after they are sold.

In general, T-Bills is a short-term financial instrument that is issued by the US Treasury with maturity periods ranging from a few days up to 52 weeks. T-Bills are considered among the safest investments since they are backed by the full faith and credit of the United States government. T-Bills are sold in denominations ranging from $1,000 (standard) up to a maximum of $10 million.

As demonstrated in the chart, T-Bill rates have been rising throughout 2023, making them a popular investment. While T-Bills mature at different intervals, the high rate of return has led many individuals to consider adding T-Bills to their retirement funds to diversify their portfolios.

What is an I-Bond?

Treasury bills are short-term debt securities issued by the federal government that matures within a year of purchase. Bonds, on the other hand, come in several variations and typically come with much longer maturity periods. I-bonds have a maturity date of 30 years unless you cash it before then. You can cash in (redeem) your I-bond after 12 months. However, if you cash in the bond in less than five years, you lose the last three months of interest. For example, if you cash in the bond after 20 months, you get the first 17 months of interest.

I savings bonds earn interest monthly. Interest is compounded semiannually, meaning that every six months, we apply the bond’s interest rate to a new principal value. Thus, your bond’s value grows both because it earns interest and because the principal value gets bigger. With a Series I savings bond, you wait to get all the money until you cash in the bond.

Hence, the major difference between a T-Bill and an I-bond is a T-Bill has a much shorter maturity period, generally up to one year, whereas the I-Bond has a thirty-year maturity.

How to Buy T-Bills with a Self-Directed IRA

T-Bills are sold at auction electronically. Auctions occur every four weeks for 52-week bills and weekly for 4-, 8-, 13-, 17-, and 26-week bills.

Below are the steps you will need to take to purchase T-Bills in a Self-Directed IRA.

1. Set-up a Self-Directed IRA LLC. “Checkbook Control is needed, via the LLC, so you have control over the operations, such as establishing an account at Treasury Direct to purchase T-Bills at auction.
2. To buy Treasury marketable securities, you must bid when the type of security you want is up for auction. You can buy (bid for) Treasury marketable securities through a TreasuryDirect account — non-competitive bids only. Each auction is for a specific type of security which is identified with a unique CUSIP number.
   • Select the Limited Liability Company option
   • Open the account in the name of the LLC – not the IRA
   • Include the name of the LLC
   • Include the LLC Tax ID Number
   • For account manager information, the LLC manager would include their own personal info. 
   • Include the LLC bank account information.
3. From there, you will be purchasing the T-Bills with your IRA.

How to Buy T-Bills with a Solo 401(k) Plan

If you are eligible, meaning you have self-employment income and no full-time employees, you can utilize the Solo 401(k) plan.

Below are the steps you will need to take to purchase T-Bills in a Solo 401(k) Plan.

1. Establish a Self-Directed Solo 401(k) plan. As the trustee of the plan, you will have “checkbook control,” giving you the ability to establish an account at TreasuryDirect and buy T-Bills.
2. To buy Treasury marketable securities, you must bid when we auction the type of security you want. You can buy (bid for) Treasury marketable securities through a TreasuryDirect account — non-competitive bids only. Each auction is for a specific type of security which is identified with a unique CUSIP number.
   • Select the Trust option (a 401(k) plan is taxed as a trust as per IRC Section 401)
   • Enter the name of the 401(k) plan
   • Enter the Tax ID# associated with the plan
   • Enter the address associated with the plan
   • For account manager information, the trustee of the 401(k) plan would include his or her own personal info
   • Include the 401(k) bank account information
3. You can then purchase T-Bills with your Solo 401(k) plan.

Conclusion

Using a retirement account to invest in T-Bills is a tax-advantageous way to gain access to a safe investment with solid returns.  However, in order to invest in T-Bills direct via TreasuryDirect, one will need to establish a “checkbook control” Self-Directed IRA LLC or Solo 401(k) plan.