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.
Taxable equivalent
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Municipal Bond Forum
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.
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Munis when you move
Curious what your strategy/opinion is on investing in long-term munis for a particular state, say Ohio, when you may move out of state in the future, say to New York. Is the loss of state-tax exemption a reason not to invest longer term? What do you recommend, hold or swap?
J.M.
Marginally exempt from the AMT
Some muni bonds are not subject to the Alternative Minimum Tax. If an individual is marginally exempt, how much difference in bond prices would be found when trading exempt vs. non-exempt on average? This appears to be a factor until Congress revises exemptions.
R.P., Florida
How to do business with us
I would like to get additional information about doing business with you. What do you charge on a transaction? How do you set up an account with you so that online purchasing is possible? Do you offer an online calculator that allows a client to look at the yield and tax savings at the same time?
M.J.
The fees in funds
I am 70 years old and over funded in my IRA. I’m still working and have no need to touch my investments. Nevertheless, I am required to withdraw about $250,000 (minimum) this year. I believe I would do best in a tax-free mutual bond fund since the cost of buying such a small amount of bonds would be higher than if I were buying them in a fund. Am I correct?
S.M., New York
Escrowed-to-maturity bonds
It appears to me that many bonds that are escrowed to maturity have yields significantly higher than those that are not escrowed. I have asked several local bond folks for an explanation and really haven’t gotten one that makes sense to me. I have to believe that higher yield means greater risk, but I am not clear as to what creates the apparent increased risk in these escrowed bonds. Can you help?
J.P.
Laddering and the possibility of rising interest rates
After reading your article, “Why laddering leaves you on the bottom rung,” it became very clear as to why over the last 25 years laddering has failed: Interest rates have been in a steady decline. I wonder, though, if laddering might not be the way to go for the future. Can we not expect a reversal of this decline? There really isn’t much expectation for lower interest rates, or am I wrong? I will be selling my business very soon, and companies I have been interviewing are all planning to use tax-free munis for the largest portion of my cash to provide my income. I honestly don’t know if they plan to ladder or not. I will certainly find out after reading your articles. I would still like a comment on the future position with regard to possibly rising rates making a ladder more attractive.
B.C.
Pure flat tax doubtful
I think tax-exempt bonds are great but what do you think will happen to bonds when Congress passes a flat tax?
D., California
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