FMSbonds, Inc.’s Municipal 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, and other members of the firm as noted.
Postings are listed by date. If you have any questions, please call us at 1-800-367-2663 or e-mail us.
I recently inherited some shares of two tax-free California bond funds. I am a Virginia resident but have a small amount of California income from a rental property there and therefore do file a non-resident California state return along with my Virginia return. Are these type of funds generally tax-free to in-state residents only? Is there a reason for a Virginia resident to hold California bonds? My inclination is to liquidate them, though I’d be interested in your thoughts.
S.B., Virginia
Your Web site is full of excellent and useful information on investing in municipal bonds. However, I am 70 and retired (my wife is 68) and we need to produce about $35,000 per year in after-tax income from a muni-bond portfolio for the next five years and then have it adjusted to cover cost-of-living increases as they occur. I would hope to live to 90, or about 20 years from now, which would be my investment horizon. In my case, the use of 30-year bonds would not be feasible, (in 30 years I would be 100). Therefore, what is your strategy/opinion on investing in intermediate-term munis (20- year bonds) in our particular case?
R.S., Florida
Your Web site is excellent, concise, thorough and complete. One piece of information I was not able to find was the physical location of FMSbonds. Where are your headquarters located and where do you have branch offices? Do you have any offices in New Mexico? I am kept well informed of new bond offerings by Edie Nasello, for which I am most grateful.
A.C., New Mexico
I’d like to get smarter about muni bonds. I want to learn more about bond ratings and bonds that aren’t rated (NRs). I’d like to know how to tell if the bond has been making payments and learn any important news such as credit upgrades or downgrades for the writers. Also, there are different bond types: Health Care Facility Revenue Bonds, Airport Revenue Bonds, Industrial Development Revenue Bonds, etc. What are the default risks or down sides to these different classes of bonds? How do I find out when their bond ratings were last reviewed? I’d bet that there is some honey to be found in bonds that aren’t rated, bonds whose ratings have not been reviewed in some time, bonds with higher coupons, trade below par and may be callable. I would suspect these would be available in odd lots.
C.S., Florida
My home state is CT. My advisers often tell me that a purchase of out-of-state bonds will be better than acquiring more CT bonds. When I ask why, I can never get an answer that completely satisfies me. They mention diversification, ratings and AMT but does it always come down to personal judgment? Is there a more technical answer? Also, I am considering buying Nuveen MuniPreferred (CT or not?) for some short-term funds. Do you have any comment on that?
J.W., Connecticut
I am 55, looking to retire and need to produce about $350,000 per year after-tax income from a muni-bond portfolio for the next 10 years, and then have it adjusted to cover cost-of-living increases as they occur. I would expect to live to 85 years, or about 30 years from now, which would be the investment horizon. I am a California resident and thus prefer a CA muni portfolio so that it is double tax-free here. How do YTMs (yield to maturities) on 20- to 30-year munis compare using out-of-state issues vs. CA issues, assuming comparable risk parameters? Is there a better annual cash-flow return from a national muni-portfolio if one were to relocate to a state like Florida? I have read your strategies page and have learned that committing to the highest yield instead of laddering (which is what most financial advisers suggest!), is the better strategy. Therefore, what is the best strategy to achieve this investment scale and how much time will it take to assemble such a portfolio?
S., California
How can you find out when dividends are paid on muni bonds? Do they have an ex-dividend date like stocks? How is interest paid to (say new buyer)? Is interest prorated between old holder and new holder? Seems like you should know these things when buying tax-exempt bonds.
K.B. Alaska
If you know the interest rate of a muni bond, how do you find the real rate, that is, what it be if it were taxable?
K.B.
I received a 1099B from my broker listing a $10,000 trade when my Washington State College Savings Bond Series 1989 (Zero Coupon Bond) matured this year. Since these bonds are tax free and not subject to federal capital gains, do I need to worry about entering the transaction on 1040 Form?
P.W.
A New York accountant recently advised that New York State was going to, or was, withholding New York State taxes on state municipal bonds held by non-New York residents. I hold New York State bonds and I’m a resident of North Carolina. Can you advise the basis of the accountant’s position? I have been unable to confirm or dispute.
J.M., North Carolina
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