The TIPS Trap: A Taxing Consequence of Inflation Protection The recent surge in Treasury Inflation Protected Securities (TIPS) yields has left many retirees and pre retirees wondering if they've found a silver bullet for inflation proofing their investments.
For a 71 year old retiree, building a ladder of TIPS to shield his Social Security benefits from taxation seemed like a savvy move. However, this strategy comes with an unforeseen catch.
When held in a taxable brokerage account, TIPS generate phantom income from inflation adjusted principal increases.