Treasury Inflation-Protected Securities (TIPS) are U.S. government bonds specifically designed so their principal value rises with the Consumer Price Index (CPI), as tracked by the Bureau of Labor Statistics. This makes them one of the few investments with a direct, government-backed mechanism for preserving purchasing power against inflation.

The “double-edged sword” comes from how TIPS behave when inflation expectations – not just actual inflation – shift, and from their interest rate sensitivity. Like other bonds, TIPS prices can fall when real interest rates rise, even if inflation itself remains elevated, since the market prices in expectations rather than only current CPI readings. TIPS held in a taxable account can also generate “phantom income” – taxable income from the inflation adjustment to principal even though you haven’t received that cash yet – a headache that TIPS held inside a tax-advantaged account like an IRA avoid.

For 2026, TIPS purchased inside a Traditional or Roth IRA are subject to the same $7,500 contribution limit ($8,600 if 50+) as any other IRA holding, per IRS Notice 2025-67, unless funded through a rollover.

FAQ

Are TIPS a substitute for other inflation hedges like precious metals? They serve a different role – TIPS offer a government-backed, direct inflation adjustment with lower volatility, while metals are a separate asset class with different risk and return characteristics.