Municipal Bond Forum

Investing in out-of-state municipal bonds

We're thinking about purchasing muni bonds from outside of our state. Does FMSbonds have an article about this? I understand munis would be taxed at the federal level, but if we bought Treasuries, for example, there would also be state tax.
J.M., California

James A. Klotz responds:

For residents who reside in states with substantial income taxes, we think there is a compelling argument for buying out-of-state bonds.Our rule of thumb is simple: If your out-of-state purchases have a greater after-tax return than bonds of the same quality from your state (California, in your case), then the out-of-state bonds provide additional income and also add diversity to your portfolio.For additional perspective, please read our article, “Finding Bonds When the Muni Supply is Tight.”