Tax Exempt Municipal Bonds

Muni Credit News’ services include portfolio analyses and reviews. We will examine your portfolio to help you better understand your holdings. If you have tax exempt bonds and investments, we will make sure that they are working for you. Some of you may be wondering what these tax exempt bonds and investments are? Municipal bonds are an attractive investment for individuals looking for assets that provide tax-advantaged income. Interest payments for these tax exempt bonds and investments are not subject to federal taxes. If the bonds are issued by the state in which the investor resides, then they are usually exempt from state taxation as well. If they are issues in the city in which the investor resides, then they are generally free of city taxes as well.

For individuals in high tax brackets, tax exempt bonds and investments can be superior to other fixed-income options. They generally make sense for investors in the higher federal tax brackets, so they are not for everyone. Default rates tend to be low on these tax exempt bonds and investments even in a tough environment so they are a sound investment. Of course, that doesn’t mean these tax exempt bonds and investments don’t carry any risk. Certain states or cities are riskier than others and you should do your due diligence before you invest. A financial analyst can help you do the research.

If you’re primary investing objective is to preserve your capital while generating a tax-free income, municipal bonds can play a major part in that strategy. They are debt obligations issued by government entities. When you buy these tax exempt bonds and investments, you are loaning money to the issuer in exchange for a set number of interest payments over a predetermined period of time. At the end of the time, the bond reaches maturity, and the full amount of the investment is returned to you.

Tax-exempt municipal bonds get most of their appeal do to their tax-free status. There are two varieties of municipal bonds – general obligation bonds and revenue bonds. General obligation bonds are issued to raise immediate capital to cover expenses and are supported by the taxing power of the issuer. Revenue bonds, which are issued to fund infrastructure projects, are supported by the income generated by those projects.

Buying tax exempt bonds and investments is a conservative investment strategy. The best way to invest in municipal bonds is to purchase a bond with an attractive interest rate, or yield. Then, you hold the bond until it matures. The next level of sophistication involves the creation of a municipal bond ladder. A ladder consists of a series of bonds, each with a different interest rate and maturity date. As each rung on the ladder matures, the principal is reinvested into a new bond. Both of these strategies are categorized as passive strategies because the bonds are bought and held until maturity.

The bottom line is that using these tax-exempt bonds and investments can have a long-term impact on your income stream and your portfolio. To learn more about municipal bonds, you can contact us at 917-776-1680 or visit our website here:

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