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-FMS-BOND (1-800-367-2663) or e-mail us.

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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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?


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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

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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?


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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.


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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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