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.

Postings are listed by date. If you have any questions, please call us at 1-800-367-2663 or e-mail us.

Bonds for California residents

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

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Buying out-of-state bonds

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

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Bond miscellanea

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

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When do you load the boat?

Your website is full of excellent and useful information on investing in municipal bonds. I know your feelings on buying good quality bonds when the money is available for investment. In your tenured opinion, doesn’t it seem that rates just do not seem all that exciting at the moment? And I realize that you probably are constantly buying, but is there a rate at which you really step up and load the boat? Again, you guys do great work, and when you said that rates might peak out after the first rate increase, you could not have been more correct. I know that you do not time the market, but you were correct.

A.C., New Jersey

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Yield curve

We all know about the yield curve, which shows that the mid range is the best place to buy bonds. That is 10 to 14 years out. In the current interest rate climate, why lock yourself in for 30 years? I ladder my portfolio by buying 10- to 12-year bonds, preferably Baa. I have been doing this successfully for 35 years.


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Withholding taxes on out-of-state bonds

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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Reporting proceeds

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?


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Taxable equivalent

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?


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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?


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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

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