{"id":9849,"date":"2021-09-16T13:25:16","date_gmt":"2021-09-16T13:25:16","guid":{"rendered":"https:\/\/zackspcg.com\/blog\/?p=9849"},"modified":"2022-02-26T13:05:37","modified_gmt":"2022-02-26T13:05:37","slug":"using-municipal-bonds-for-income-and-potential-tax-benefits","status":"publish","type":"post","link":"https:\/\/zacksim.com\/blog\/using-municipal-bonds-for-income-and-potential-tax-benefits\/","title":{"rendered":"Using Municipal Bonds for Income and Potential Tax Benefits"},"content":{"rendered":"\n<p><em>Bill E. from Chevy\nChase, MD asks: <\/em>Good morning Mitch, I\u2019m a little concerned about taxes\ngoing up with the latest $3.5 trillion budget package. I\u2019ve long known that\nmunicipal bonds are a way to generate some tax-free growth and income, but have\nnever invested. Curious to hear your thoughts, and whether now is a relatively\ngood time for Muni bond investing. Thank you.<\/p>\n\n\n\n<p><strong>Mitch\u2019s Response:<\/strong><\/p>\n\n\n\n<p>Thank you for the note, Bill. I\u2019ve seen some version of your\nquestion quite a bit recently, as high net-worth investors start to think about\nthe possible implications of tax increases associated with the American\nFamilies Plan. <\/p>\n\n\n\n<p>For readers who aren\u2019t familiar, municipal bonds are an\nasset class that can \u2013 in some cases \u2013 offer preferential tax treatment.\n\u2018Munis\u2019 (as they\u2019re often called) are debt securities that are issued at the\nstate or local level. Chevy Chase may issue municipal bonds to pay for a new\nschool or a new bridge, for instance. <\/p>\n\n\n\n<p>Municipal bonds are not taxable at the federal level, which\nis what makes them attractive to some investors. But Munis are not necessarily\nfully tax-free \u2013 your home state may tax you on interest income if you buy a\nmunicipal bond from another state, and there are a few other instances where an\ninvestor may be surprised by a capital gains tax bill. I\u2019d recommend working\nwith a tax advisor before diving in.<sup>1<\/sup> <\/p>\n\n\n\n<p>__________________________________________________________________________<\/p>\n\n\n\n<p><a href=\"https:\/\/go.steadyinvestor.com\/arrow-8-retirement-mistakes?source=blog&amp;medium=website&amp;term=mitchsmailbox_blog_09_16_2021&amp;content=8_retirement_mistakes\"><strong>8 Retirement Mistakes You Should Avoid!<\/strong><\/a><\/p>\n\n\n\n<p>Trying to time the market is a common mistake that many\ninvestors fall prey to. Chasing the heat isn\u2019t recommended for long-term\ninvestors, especially those who are preparing for retirement. <\/p>\n\n\n\n<p>We recommend that investors fully do the research, so to\nhelp you avoid mistakes like these, we have created our guide <em>8 Retirement\nMistakes You Need to Avoid.<\/em> This guide will dive into common mistakes such\nas:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>Is Your Portfolio Too Conservative?<\/li><li>Trying to Time Markets<\/li><li>Lack of Diversification<\/li><li>Not Knowing How to Adjust Lifestyle After\nRetirement<\/li><li>Switching Strategies Too Often<\/li><\/ul>\n\n\n\n<p>If you have $500,000 or more to invest and want to learn\nmore, click on the link below to get your free copy:<\/p>\n\n\n\n<p><strong><a href=\"https:\/\/go.steadyinvestor.com\/arrow-8-retirement-mistakes?source=blog&amp;medium=website&amp;term=mitchsmailbox_blog_09_16_2021&amp;content=8_retirement_mistakes\">Download \u2013 <\/a><em><a href=\"https:\/\/go.steadyinvestor.com\/arrow-8-retirement-mistakes?source=blog&amp;medium=website&amp;term=mitchsmailbox_blog_09_16_2021&amp;content=8_retirement_mistakes\">8 Retirement Mistakes You Need to Avoid<\/a><sup><a href=\"https:\/\/go.steadyinvestor.com\/arrow-8-retirement-mistakes?source=blog&amp;medium=website&amp;term=mitchsmailbox_blog_09_16_2021&amp;content=8_retirement_mistakes\">2<\/a><\/sup><\/em><\/strong><\/p>\n\n\n\n<p>__________________________________________________________________________<\/p>\n\n\n\n<p>As far as the current state of municipal bonds, our head of\nfixed income, Manish Jain, has recently written that municipal\nbonds have been performing well, as the reopening of the U.S. economy has\nboosted consumer spending and as housing markets remain hot. Demand for\ntax-free income has also been sustained from investors fearing higher income\ntax rates in the future, which I think is the basis of your question. 2021\nlooks to be on pace to surpass 2019 as the best fund flow year ever.<\/p>\n\n\n\n<p>Fundamentally, in our view, the outlook\nfor state and local municipalities remains favorable, and the potential passage\nof the infrastructure bill should bode well for local finances as well.<sup>3<\/sup>\nThere\u2019s also been an interesting pandemic dynamic worth noting \u2013 states emerged\nfrom the pandemic relatively unscathed, and in many cases ended up with budget\nsurpluses given the unprecedented levels of fiscal stimulus funds. Many thought\nthat states\u2019 finances would be rattled by the pandemic, but the outcome was\noftentimes the opposite. <\/p>\n\n\n\n<p>There have been a few risks worth\nnoting across the country, however. The wildfires in the West have been fairly\nintense, and storms and flooding have wreaked some havoc in the South and\nNortheast. These risks are not new, and state and federal aid \u2013 along with\ninsurance \u2013 should help curb the financial impact. But these are the types of\nrisks municipal bond investors should consider. <\/p>\n\n\n\n<p>As you can probably surmise, I\u2019m neither\nbullish nor bearish on municipal bonds. I think they can play a key role in an\ninvestor portfolio by providing a diversified source of income with potential\ntax benefits. But overall, I\u2019m not an advocate for allowing the \u2018tax tail to\nwag the investment dog.\u2019 Tax strategy matters, but total return strategy\nmatters more. <\/p>\n\n\n\n<p>Along with maintaining a diversified portfolio, investors,\nespecially those preparing for retirement, should be aware of common investing\nmistakes to better plan for their financial future. <\/p>\n\n\n\n<p>We believe that there are eight common retirement mistakes\nthat investors should avoid. <\/p>\n\n\n\n<p>If you have $500,000 or more to invest and want to learn\nmore, click on the link below to download our latest guide: <em>8 Retirement\nMistakes to Avoid<sup>4<\/sup>.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Mitch looks at the role of &#8220;munis&#8221; for income generation and tax advantages<\/p>\n","protected":false},"author":3,"featured_media":7436,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[66,71],"tags":[],"class_list":["post-9849","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-mitchs-mailbox","category-private-client-group"],"acf":[],"_links":{"self":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/9849","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/comments?post=9849"}],"version-history":[{"count":1,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/9849\/revisions"}],"predecessor-version":[{"id":10309,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/9849\/revisions\/10309"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/"}],"wp:attachment":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/media?parent=9849"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/categories?post=9849"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/tags?post=9849"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}