TIPS Review (2026) - Treasury Inflation Protection Deconstructed

How TIPS work

A 10-year TIPS bought today has a face value of $1,000 and a real yield (also called "real coupon" or "coupon rate") of approximately 2.00%. The principal value of the bond adjusts for CPI-U inflation twice yearly. Coupon payments are calculated as the real rate × current (adjusted) principal, paid semi-annually.

Example over one year at 3% CPI:

• Start: $1,000 principal, 2.00% real coupon ⇒ $20/year coupon
• After 6 months at 1.5% half-year CPI: principal adjusts to $1,015 ⇒ semi-annual coupon = $1,015 × 1.00% = $10.15
• After 12 months at 3% full-year CPI: principal at $1,030 ⇒ semi-annual coupon = $1,030 × 1.00% = $10.30
• Total year-1 coupons: $20.45. Plus $30 principal accrual (taxable but not paid).
• Total year-1 economic return: $50.45 on $1,000 = effective 5.05% (2% real + 3% inflation, compounded).

Maturities, minimums, where to buy

• Maturities: 5-year (auctioned April, October, December), 10-year (Jan, March, May, July, Sept, Nov), 30-year (Feb, June, Oct).
• Minimum: $100 at TreasuryDirect; $1,000 at most brokerages.
• Where to buy: TreasuryDirect (new-issue auction at zero cost), Fidelity/Schwab/Vanguard (commission-free new-issue, small spread on secondary), TIPS ETFs (SCHP, VTIP, TIP, STIP) for diversified exposure.
• Liquidity: Tradeable any business day on secondary market through any brokerage.

The phantom-income problem

This is the single most important thing to understand about TIPS in a taxable account. The principal-adjustment income (the upward adjustment for inflation) is taxable federally in the year it accrues, even though you don't receive the cash until you sell the TIPS or it matures.

On a $250K TIPS position with 3% CPI, you'll owe federal tax on roughly $7,500 of phantom income annually, plus tax on the coupon. In the 37% federal bracket, that's $2,775 of cash-out-of-pocket tax on income you haven't received.

Standard practice: hold individual TIPS inside IRAs only. In taxable accounts, use TIPS ETFs (which manage distributions to be cash-matched) or just use I-Bonds for inflation exposure up to the $10K/year cap.

When TIPS make sense

1. Inflation hedge inside IRAs. No phantom-income problem. Tax-deferred wrapper. Direct CPI protection.
2. Above I-Bond cap inflation exposure. $10K/person/year is the I-Bond limit. For larger inflation hedges, TIPS scale.
3. Specific maturity for known future cash need. A 10-year TIPS held to maturity guarantees inflation-adjusted real return.
4. Pension or Social Security alternative. A laddered TIPS portfolio can synthesize an inflation-protected real income stream similar to COLA-adjusted pension benefits.
5. Retirement income flooring. Combine with a non-inflation-adjusted SPIA to create inflation-protected base income.

When TIPS don't make sense

1. Taxable accounts (without ETF wrapper). Phantom-income tax drag eats the inflation benefit.
2. Short-horizon money. 5-year is the shortest maturity; for sub-5-year inflation hedging, I-Bonds or rolling T-bills work better.
3. Lump-sum 3-10 year retirement money in a taxable account. MYGAs pay 5.25-5.65% with full tax deferral - usually beats TIPS' effective nominal yield after accounting for phantom-income tax.
4. Strong deflationary expectations. While par-floor protection exists at maturity, mid-life deflation can reduce coupon payments.

The MYGA contrast

TIPS' nominal effective yield right now is about 4.45% (2.00% real + 2.4% CPI). A 10-year MYGA from an A-rated carrier pays approximately 5.50% locked. The MYGA wins on nominal yield by ~100 bps and on tax treatment (full federal+state deferral vs. annual phantom income).

The TIPS wins if CPI runs above the MYGA's implicit breakeven, which is roughly 3.50% sustained inflation. In a cool inflation environment (current 2.4% CPI), the MYGA wins by a wide margin. In a hot inflation environment (5%+), the TIPS catches up and passes.

Don't choose either-or. Hold some TIPS for inflation insurance and the rest in MYGAs for yield certainty. The risk premium of locking nominal rates is worth taking when CPI is anchored; the inflation hedge becomes valuable when expectations shift.

Buying TIPS - tactical guide

• TreasuryDirect - $100 minimum, free, auction calendar at treasurydirect.gov. Cannot sell on platform.
• Brokerage new-issue auction - Fidelity, Schwab, Vanguard offer commission-free auction participation. $1,000 minimum at most brokers.
• Brokerage secondary market - Available for off-the-run TIPS. Small bid-ask spread (5-15 cents per $100 face).
• TIPS ETFs - SCHP (broad), VTIP (short 0-5yr), TIP (broad), STIP (short). 4-15 bps expense ratio. Best choice for most retail investors and for taxable accounts.

FAQ

What is a TIPS 'real yield'?

The yield above inflation that you'll earn if held to maturity. A 2.00% real yield TIPS pays you 2.00% per year more than whatever CPI runs over the holding period.

Are TIPS yields the same as the 'breakeven' rate?

No. The breakeven inflation rate is the CPI level that would make TIPS and nominal Treasuries of the same maturity break even. As of 2026, the 10-year breakeven is around 2.30% - meaning the bond market expects CPI to average that over the next decade. If CPI runs above 2.30%, TIPS outperform nominal Treasuries; below, nominal wins.

Can I lose money on TIPS?

Yes, in two ways. (1) If sold before maturity in a rising-real-rate environment, the secondary market price drops. (2) In deflation, principal can adjust downward (though never below original par at maturity).

Are TIPS state-tax exempt?

Yes. All Treasury securities including TIPS are exempt from state and local income tax under 31 U.S.C. Section 3124. Coupon interest AND inflation-adjustment income are both exempt at the state level.

What CPI measure do TIPS use?

CPI-U (Consumer Price Index for All Urban Consumers), Not Seasonally Adjusted, published monthly by the Bureau of Labor Statistics. The TIPS adjustment uses a 3-month lag (e.g., the principal adjustment in July uses the CPI level from April).

How are TIPS coupons paid?

Semi-annually, calculated as the real coupon rate divided by 2, applied to the current (inflation-adjusted) principal. So both the coupon dollar amount and the principal grow with CPI.

Why do TIPS sometimes have negative real yields?

When real interest rates are very low (or negative), TIPS yields can be below zero. Buyers accept negative real yields because they're paying for inflation insurance - they want to protect purchasing power even at a real cost. This was common in 2020-2022.

Should I hold TIPS in my Roth IRA?

Sure - any IRA wrapper eliminates the phantom-income problem and lets the inflation adjustment compound tax-free. Roth gets you tax-free withdrawals; traditional gets you tax-deferred. Both are vastly better than holding TIPS in a taxable account.

Related reading

• TIPS vs I-Bonds head-to-head
• TIPS vs MYGA
• I-Bonds 2026 review
• Treasury laddering
• State tax on Treasury interest

TIPS for inflation hedge - MYGAs for the rest of fixed income

Hans Goldstein, independent licensed insurance producer.

TIPS work great inside IRAs for inflation protection. For the lump-sum, taxable, 3-10 year retirement cash that doesn't need CPI linkage, MYGAs from A-rated carriers pay 5.25-5.65% locked, with full federal AND state tax deferral. Worth seeing the side-by-side at your actual numbers.

Drop your info and within 24 hours you'll get a written side-by-side: the Treasury option vs. the top 3 MYGAs from A-rated carriers at the same term, end-of-term math at your actual dollar amount, and after-tax yield computed at your state bracket. No pitch, no follow-up calls unless you ask.

First name

Phone *

Email *

What are you considering?

Amount ($)

Best time to callMorningAfternoonEvening

I agree to receive calls and texts from Hans Goldstein at the number provided. Msg/data rates apply. Reply STOP to opt out.

Get my Treasury vs MYGA comparison

Hans Goldstein · 213-414-2808 · NPN 20602398, independent licensed insurance producer appointed with multiple A-rated carriers

By submitting, you agree to receive calls and texts from Hans Goldstein. Msg/data rates apply. Reply STOP to opt out. Privacy Policy.

Disclosure

This review reflects publicly available Treasury auction results, TreasuryDirect documentation, and approximate market yields as of the date stated above. Treasury yields change daily; current yields differ from prior auctions and may differ from those shown here. This article is general information for educational purposes; it is not a personalized recommendation, solicitation, or offer of any specific security or insurance product. U.S. Treasury securities are backed by the full faith and credit of the United States Government. MYGA references compare Treasury yields against approximate rates from A-rated insurance carriers as of the date stated; carrier rates change monthly. State guaranty fund coverage on annuities is provided by the state insurance department and varies by state (typically $250,000-$300,000 per owner per carrier). Hans Goldstein is an independent licensed insurance producer (NPN 20602398) appointed with multiple A-rated annuity carriers; he is NOT a registered investment advisor, broker-dealer, or registered representative, and is not paid by the U.S. Treasury, TreasuryDirect, or any brokerage for this review. No compensation has been received from any third party in connection with this content. Always read the actual offering documents and consult a licensed advisor before purchasing any security or annuity. Tax discussion of 31 U.S.C. §3124 and Internal Revenue Code provisions reflects law as of 2026 and is subject to change.