Tax Free Income & Municipal Bonds - Waukesha Wisconsin

 

 

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Tax advantaged income can be difficult to find, but municipal bonds are one of the most common sources.

Municipal bonds pay interest that is free from federal income tax (in Wisconsin municipal bonds may be free from state taxes as well) and are issued by local and state municipalities. The tax free nature of their income often makes municipal bonds attractive for investors in a higher tax bracket. You must account for the tax benefits of municipal bonds when comparing them to corporate bonds or certificates of deposit.

Tax equivalent yields are based on a combined federal and state tax rates of 28%, 33%, and 35%.

 

For example; if your income puts you in the 35% tax bracket then a 4% municipal bond has a tax equivalent yield of 6.15%. That means you'd have to find a corporate bond or CD paying better than 6.15% to compete with a 4% municipal bond. 

Please be advised that income from municipal securities is generally free from federal taxes and state taxes for residents of the issuing state. While the interest income is tax-free, capital gains, if any, will be subject to taxes. Income for some investors may be subject to the federal Alternative Minimum Tax (AMT).

Investing in fixed income securities involves certain risks such as market risk if sold prior to maturity and credit risk especially if investing in high yield bonds, which have lower ratings and are subject to greater volatility. All fixed income investments may be worth less than original cost upon redemption or maturity.

 

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Municipal bonds can be complicated. There are general obligation bonds, revenue bonds, pre-refunded bonds, bonds with sinking funds, insured bonds, Build America bonds, unrated bonds, and bonds subject to AMT. The Berrall Kons Wealth Management Group is a family team of financial advisors in Waukesha, Wisconsin. We're here to help you navigate the complexity and create  income for you in retirement. Please contact us to discuss your situation.

The content on this page has been provided for informational purposes only and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy. Since each person’s situation is different you should review your specific investment objectives, risk tolerance and liquidity needs with your financial, tax and legal professionals before selecting a suitable savings or investment strategy.

Wells Fargo Advisors does not provide tax or legal advice. Be sure to consult with your own tax and legal advisors before taking any action that may have tax or legal consequences.