How a TIPS Ladder Works: the Floor Is a Maturity Feature

Updated August 3, 2026. Quick answer: the mechanic that makes a ladder work is that a directly held TIPS has a defined amount owed at a defined date, so interim price movement is irrelevant if you hold it. Two constraints shape how a ladder can actually be built: Treasury issues only 5, 10 and 30-year TIPS, and TreasuryDirect will not reinvest a maturing TIPS.

How the principal adjusts

From the regulations: “Index ratio means, for an inflation-protected security, the Reference CPI of a particular date divided by the Reference CPI of the original issue date.” The daily index ratio multiplies the par amount to give the inflation-adjusted principal on any date.

And the coupon: “TIPS pay a fixed rate of interest every six months until they mature. Because we pay interest on the adjusted principal, the amount of interest payment also varies.” The rate is fixed at auction; the payment moves with the adjusted principal.

The floor at maturity, quoted from the regulation

From 31 CFR § 356.30(b)(1):

the inflation-adjusted principal is equal to or more than the par amount of the security … we will pay the inflation-adjusted principal. (ii) the inflation-adjusted principal is less than the par amount of the security, and the security has not been stripped … we will pay an additional amount so that the additional amount plus the inflation-adjusted principal equals the par amount.

Treasury’s own plain-language version: “When a TIPS matures, you get either the increased (inflation-adjusted) price or the original principal, whichever is greater. You never get less than the original principal.”

That floor applies AT MATURITY only. It says nothing about the price if sold beforehand. A TIPS sold before maturity is sold at whatever the market pays that day, and that can be less than either figure. The floor is a maturity feature, not a holding feature, and conflating the two is the most common error about these securities.

The tax mechanic that decides where they sit

TreasuryDirect states it plainly: “Federal tax due each year on interest earned. Any increase or decrease in the principal during the year may affect your federal taxes.”

The annual inflation adjustment is treated as original issue discount and taxed in the year it accrues, even though no cash arrives until maturity. In a taxable account that creates a tax bill before the cash; inside a tax-deferred account the accrual is not currently taxed.

The IRS characterisation came from a summarising fetch rather than a verbatim pull and is flagged medium; the TreasuryDirect sentence above is an exact quote.

The practical shape of that: in a taxable account the inflation adjustment produces a tax bill in years when no cash has arrived. That is a cash-flow fact about the instrument, not a judgement about it.

What is actually issued, and the gap this creates

“TIPS are sold for a term of 5, 10, or 30 years.”

Auction cadence: 5-year: new issues April and October, reopenings June and December. 10-year: new issues January and July, reopenings March, May, September and November. 30-year: new issue February, reopening August.

Because Treasury issues TIPS only in 5, 10 and 30-year original terms with one or two new issues a year plus reopenings, consecutive-calendar-year maturity coverage is not guaranteed by design and some years have no TIPS maturity.

We are not publishing a list of gap years. A specific list of gap years was obtained from TreasuryDirect’s auction-search API but could NOT be confirmed as the complete universe of outstanding TIPS – the response may reflect only a rolling window. No gap-year list is published. Check current availability at source rather than against any list, including one we might have printed.

The reinvestment rule that shapes maintenance

“You may reinvest bills, notes, bonds, or FRNs, but not TIPS.”

So a maturing rung cannot roll automatically. The proceeds land in the linked bank account or the zero-percent holding account, and extending the ladder is a manual purchase every time. For a structure meant to run for decades that is a real administrative commitment, and it is worth knowing before starting rather than discovering at the first maturity.

Buying at auction

A non-competitive bid is “The maximum award to any noncompetitive bidder is $10 million. This limit does not apply to bidders bidding solely through a request to reinvest the proceeds of a maturing security held directly with Treasury.” (31 CFR 356.22(a).) The bidder sets no price and takes whatever the auction clears at, with the award guaranteed.

And a constraint specific to holding directly: “when you buy a Treasury marketable security, you must hold it in your TreasuryDirect account for 45 days before selling or transferring it”. TreasuryDirect does not execute secondary-market sales. To sell, you must transfer the security to a bank, broker, or dealer (to the commercial book-entry system).

Treasury interest is exempt from state and local income tax under 31 U.S.C. § 3124(a). That exemption is broader and more precise than most summaries make it, and it has a mirror image in how municipal bonds are treated — the breadth clause and what it actually covers.

Related: the shorter-dated version of the same mechanic · why a fund cannot do the maturity part.

General information drawn from IRS, Medicare, HUD and state statute and regulation, not legal, tax or financial advice. Continuing-care law is state law and differs materially between states; every figure here is year-labelled and every source named. Fiduciary licensing, executor compensation and intestacy are STATE law and differ change. Rates and limits are year-labelled and move; verify current terms at treasurydirect.gov before acting. Nothing here is a prediction or a recommendation about any investment – it describes how these instruments work.