Join Early Retirement Today
Thread Tools Search this Thread Display Modes
Bond Funds Distribution and Taxes
Old 07-16-2014, 03:02 PM   #1
Full time employment: Posting here.
UnrealizedPotential's Avatar
Join Date: May 2014
Posts: 680
Bond Funds Distribution and Taxes

I was wondering for those in Bonds how much taxes are each month for your distribution?Do you pay Federal and State tax on the distribution?If so,is it better to try to get the highest yield possible to offset that?Or,is it better to try to get one of the tax exempt Bond funds for Federal and just pay State tax?Fortunately for me I have time before I have to worry about this, but it is coming and I want to learn what I can.

Understanding both the power of compound interest and the difficulty of getting it is the heart and soul of understanding a lot of things. Charlie Munger
UnrealizedPotential is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 07-16-2014, 03:11 PM   #2
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Join Date: Jun 2005
Posts: 8,951
Thanks for asking. I don't pay any taxes on my bond fund distributions since all my bond funds are held in tax-advantaged accounts.

Non-tax-exempt bond fund dividends are taxed just like interest from a savings account or even wages. Bond fund capital gains are taxed like equity fund capital gains.

So maybe you can clarify your question a little bit. Do you do your own tax return each year?

More on munis: including links to tax-equivalent yield calculators for some math that you can do in your head.

LOL! is offline   Reply With Quote
Old 07-16-2014, 07:10 PM   #3
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
RunningBum's Avatar
Join Date: Jun 2007
Posts: 5,831
The tax-exempt vs. taxable bonds question can only be answered by comparing rates and knowing your tax bracket. For example, if you are in the 25% bracket, and getting a 4% taxable bond rate, you'd need 3% tax exempt to match it. Less than 3%, you'd be better with taxable. More than 3%, tax exempt wins. If you are in the 33% bracket, the break-even rate becomes 2.67%. So take (1-tax rate) * taxable bond rate to get the break even tax exempt rate.
RunningBum is online now   Reply With Quote
Old 07-16-2014, 11:08 PM   #4
Thinks s/he gets paid by the post
Telly's Avatar
Join Date: Feb 2003
Posts: 1,480
Originally Posted by UnrealizedPotential View Post
I was wondering for those in Bonds how much taxes are each month for your distribution?Do you pay Federal and State tax on the distribution?............
We have both a taxable and a tax-exempt fund in our taxable area. A year or two ago we switched the dividends on the taxable to come to us as cash, the tax-exempt still has the dividends re-invested. No state tax here. The dividends from the taxable bond fund are, well, taxable, whether they are re-invested or not.

This may be obvious, but just in case it isn't, If you want to get a handle on taxes:
Assume a taxable bond fund investment of X$
Look up a bond fund that you are interested in, find the share price and divide it into the X$ amount to get number of shares.
Look at the recent distributions of the fund to see the $ per share per unit of time. Many/most are monthly distribution. Do the math to get your total $ distributions for the past year.
Then you need to include that with your other income. A little bit of time with a tax form will do it, or play with TurboTax or the like to get your final answer.
-- Telly, the D-I-Y guy --
Two fools dancing on the hands of time
Telly is offline   Reply With Quote
Old 07-17-2014, 05:42 AM   #5
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Join Date: Jun 2005
Posts: 8,951
If one is familiar with IRA withdrawals, then dividends from a bond fund are taxed like a withdrawal from a traditional IRA while dividends from a tax-exempt bond fund are usually taxed like a withdrawal from a Roth IRA. That's for federal income taxes, since state income taxes are usually different.
LOL! is offline   Reply With Quote

Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off

Similar Threads
Thread Thread Starter Forum Replies Last Post
bond-cds-bond funds bobbee25 FIRE and Money 5 12-29-2008 10:34 AM
50% ST Bond Funds + 50% Bank Loan Funds? hapahc Stock Picking and Market Strategy 17 07-29-2008 07:19 PM
Taxes, Taxes. Taxes mickeyd FIRE and Money 1 02-09-2008 12:18 PM
Bond funds vs. stock funds summer2007 FIRE and Money 15 01-14-2008 02:22 PM
Target Retirement Funds: Bond Funds vs Actual Bonds? Gearhead Jim FIRE and Money 11 10-23-2007 11:39 AM


All times are GMT -6. The time now is 12:01 PM.
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2018, vBulletin Solutions, Inc.