Tax-free Municipal Bonds

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I'm trying to narrow my search for one or perhaps several tax-free bond funds to add to my portfolio. I tend to like the closed end variety. I've checked out offerings from Blackrock funds, Nuveen, Putnam, Morgan Stanley, Eaton Vance, et al. Man, there sure are a perplexing variety of funds to pick from! Many of them look like clones of each other, with only slight differences in the fund's name. What would be some filtering criteria that I should apply to selecting a tax free fund? NAV premium/discount, dividend history (increase or decrease - how to find this?), what happens to muni funds if the Fed lowers - or raises - interest rates, etc. Actually, I'm just about ready to give up and use a dart board to select a fund! Any professional help would be appreciated. (I don't need a state-specific fund either, as my state does not have a state income tax.)

Best Answer

since all bond funds are buying from the [basically] same pool of issues, I would critically compare their operating expenses. Secondarily, I would look at their long term performance - at least 5 years- and their turn over rate. Turn over can mean a significantly higher tax event for you even if the overall performance is only mediocre. There are ETFs and other close-ended funds that are dividend driven that might deliver as high a return as munis-Wisdom Tree and First Trust come to mind; I might look at RNE, PEO, USA, ASG, IFN, IAF or MIC for their growth and a very nice dividend to boot...[personally, these are some of my favorites, and have replaced most of my muni funds] as far as "safe and reliable" like a muni fund maybe look at a good G&I fund You'd get a bit of growth with your income-again, almost too many to list, but Money, Kiplingers, Barrons, even Consumer Reports all run an end of the comparison for "best" in a given category. good hunting...

Best Answer

5% divided by 1 minus the tax rate of .35 = 5/.65 = 7.69 check it out here for the calculator: http://flagship5.vanguard.com/VGApp/hnw/ FundsTaxEquivForYield?Yield=5& FederalTaxBracket=35#results

I understand that if an individual invests in municipal bonds, they do not have to pay federal income tax on the interest, and usually do not have to pay state income tax on the interest either. But what if a corporation buys municipal bonds, do they have to pay federal income tax on the interest? And do they have to pay state income tax on the interest? Thank you advance for your generous help.

Best Answer

It depends on the bond. Check with the broker to get details on how much is tax-exempt. Regardless of the filing entity, tax treatment will be the same. Another words, if an individual is exepmt, Corps, P-ships, and trusts are also exempt.

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Call your broker office. Most can get you your cost basis fairly quick. On your 1099-B, check to make sure the amount it lists as proceeds is the net. Most list it that way to where you won't have to net your investment expenses, etc. as costs of the sell that will go against the proceeds.

Best Answer