Tax-free income investing using “muni bonds”
Beacon Capital Management Advisors (BCM) works with a fee-based investment management company that focuses on municipal bonds for investors desiring tax free income. Tax free bonds may be subject to AMT.
What are municipal bonds?
Municipal bonds (nicknamed “munis” or “muni bond”) are loans issued by state, city and county governments to raise money to build schools, highways, hospitals, sewer systems and other public projects. When you purchase a municipal bond, you are lending money to a state or local government to finance these public projects. The state or local government promises to pay you a specified amount of interest (usually paid semiannually) and return the principal they borrowed to you on a specific maturity date. Most municipal bonds offer income that is exempt from federal, state and city taxes if applicable, provided you reside in the state or city that is issuing the municipal bonds. Tax free bonds may be subject to AMT*.
Who could benefit from investing in a municipal bond portfolio?
Investors in high tax brackets who want tax free income may want to invest in municipal bonds. Since most municipal bonds provide tax free interest they can potentially offer investors higher after tax yields than corporate bonds of the same credit quality. Investors who are not in high tax brackets may earn a higher after tax yield from a corporate bond**. Municipal bonds can not be placed in an IRA or any qualified retirement plan.
Learn more about municipal bond portfolio management.