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FMSbonds, Inc.'s Bond Forum™ is an exclusive opportunity for investors to submit questions and comments on the bond market or to respond to one of our articles.
To participate, just send us an e-mail. Be sure to include your name or initials and your state of residence. Posted e-mails may be edited for length and clarity. If you prefer a private response, please note that in your e-mail. Responses are provided by James A. Klotz, president and co-founder of FMSbonds, Inc., a municipal bond specialist for more than 35 years; Dr. Jay H. Abrams, chief municipal credit analyst; and other members of the firm as noted.
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I think tax-free municipal bonds are a great investment and I have a number of them. But are they right for an IRA? I have to pay taxes when I withdraw from my IRA anyway, as ordinary income. Is there a better "taxable" investment that makes sense for an IRA?
- P., Arizona
In a normal fixed-income market environment, taxable bonds will yield more than tax-free bonds, which makes them the preferred investment choice for IRAs and other retirement accounts, as income can accumulate on a tax-deferred basis.
All IRA distributions are subject to taxation.
There are various corporate and taxable muni bonds we recommend for IRA investments.
What is your take on Puerto Rico bonds? Is it safe to buy them again?
- G.R., Hawaii
We think an investment in most Puerto Rico issues should be considered speculative in nature.
However, for some time we have been recommending Puerto Rico bonds insured by Assured Guaranty and National Public Finance Guarantee. This has proven to be prescient as both companies have been upgraded recently by Standard and Poor's Corp.
The city of Detroit, under the emergency management of Kevyn Orr, is attempting to treat general obligation municipal debt as unsecured. At stake and under consideration by the court are the terms "promise" versus "tax obligation." Do you have any thoughts on the safest states?
- V.A., Nevada
It is important to remember that Detroit is extremely unique. It is a city that has clearly been deteriorating for many years due to gross mismanagement with a declining population and tax base.
There are many high-quality bonds available in every state that can satisfy your requirements for safety. As a resident of a state with no income tax, you have the entire country to choose from.
This report is produced solely for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. This report is based on information obtained from sources believed to be reliable but no independent verification has been made, nor is its accuracy or completeness guaranteed.