Municipal Bond Forum
Investing and your state of residence
Q
I’m 35 and currently a California resident. If I buy really long-term California municipals with the intention of holding them until they mature, am I constraining myself for the tax benefits to remain a California resident for the long term? It’s too soon for me to know where I’ll want to live in five years, much less 30. If and when I move elsewhere, I could sell the California bonds and replace them with bonds from my new resident state, but that would involve transaction costs. Also, it would undermine the buy-and-hold strategy and put me at risk of selling at a discount. Are municipal bonds best as an investment for people who know that where they live is where they’ll always be? Thanks for a very informative site with well-reasoned and persuasive advice.
A
James A. Klotz responds:
We fear you are unduly concerned with the constraints of changing your state of residence.
Because California has one of the highest state tax rates in the country, “swapping” into bonds issued by most other states is easily accomplished.
Since the sale of your California bonds and the purchase of new bonds would be executed under the same market conditions, any discounting of your holdings would also be reflected in the new bonds purchased. (Transaction costs should not be prohibitive.)
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The responses provided in this forum are meant to address specific questions posed by investors about their municipal bonds and to provide market insight for our general audience. Please note, your investments, objectives, results and experience may differ significantly. Our answers and any potential strategies discussed should not be construed as a solicitation to buy nor sell any security or investment product. All investing entails risk.
