Anyone using tax exempt Muni bonds for income stream? Just want some advice

C

cyber888

Thinks s/he gets paid by the post
Joined
Aug 12, 2013
Messages
1,972
I'm planning to retire soon and want to have a steady stream of tax exempt dividends. I have already put around $56K on muni bonds earning me around $300/month. I plan to add $100-$120K more so I can bump up my earning to $1000/month. I don't like annuities, because I can't get the principal. So, I'm sticking to bonds, where I can sell the principal in case of real emergencies.

Right now, I'm just waiting for the Feds to raise rates in December, and I will start to invest around $12000-$13000 a month over from Jan. to Oct. 2016 and dollar cost average over 10 - 11 months.

Just want to get your opinion on those with more than $100,000 on muni bonds ...



 
What kind of munis are you getting w/ that yield? Seems about 2x normal?
 
kaneohe said:
What kind of munis are you getting w/ that yield? Seems about 2x normal?
Click to expand...

Muni bond funds - Nuveen and Eaton Vance close-end funds. Yield is 6% - 6.8% (tax exempt yields).







 
Last edited:
Possibly, because it pays more than the preferred shares.



 
cyber888 said:
I'm planning to retire soon and want to have a steady stream of tax exempt dividends. I have already put around $56K on muni bonds earning me around $300/month. I plan to add $100-$120K more so I can bump up my earning to $1000/month. I don't like annuities, because I can't get the principal. So, I'm sticking to bonds, where I can sell the principal in case of real emergencies. Right now, I'm just waiting for the Feds to raise rates in December, and I will start to invest around $12000-$13000 a month over from Jan. to Oct. 2016 and dollar cost average over 10 - 11 months. Just want to get your opinion on those with more than $100,000 on muni bonds ... [*]
Click to expand...
We hold considerably more than that in an intermediate muni fund.(VWITX). It is yielding around 3%. No leverage.
 
Last edited:
We hold domestic and international equities in our taxable accounts to take advantage of the 0% tax rate for qualified dividends and LTCG and the foreign tax credit for international equities. Our marginal tax rate in retirement is 15% so munis don't make a lot of sense for us.
 
pb4uski said:
We hold domestic and international equities in our taxable accounts to take advantage of the 0% tax rate for qualified dividends and LTCG and the foreign tax credit for international equities. Our marginal tax rate in retirement is 15% so munis don't make a lot of sense for us.
Click to expand...

I'm not sure I understand why munis don't make sense? Munis provide tax-exempt dividends, so that's tax-free income. You said your tax is around 15%. Now let's say you're personal income tax is in the border between 15% and 25% of tax income bracket. If you add muni bonds, and get an additional $1000/month income, your tax rate will still remain in the 15% and not bump you over to the 25% tax bracket, because your additional income is tax exempt. Or are you just saying, you prefer tax-exempt dividends coming from equities and stocks, like oil exploration or utilities (maybe) ?







 
I prefer tax-exempt qualified dividends and LTCG, plus I can take advantage of the foreign tax credit. Since in the long run these investments return a lot more than munis I would rather have these in my taxable account than munis. IOW, 6-7% tax free trumps 2-3% tax-free.

My fixed income allocation, which would include bonds, are in tax-deferred accounts.

Munis made more sense for us when I was working and was in a high tax bracket.

I manage my Roth conversions to the top of the 15% tax bracket.
 
See Wall Street Journal story, Thursday Nov 5th, front of section, Money & Investing, saying Muni bonds big winner 2014, 2015.......give examples of Fidelity & Vanguard......suggest buying funds not individual bonds......I've won big in them, especially since I have taxable income and only pay around 10-12 basis points for my Vanguard....pay a little more for Fidelity but worth it as well.
 
Like pb4uski, I used to have much more in muni bond funds when I was still working and in a higher marginal tax bracket. But after I ERed back in late 2008, my marginal tax bracket dropped from 25% to 15%, making muni bond funds less attractive. I'd rather be in a taxable bond fund whose rate of return is higher, even after taxes (which are lower now than they were before).


I use my muni bond fund holdings, now down to about $80k, as my second-tier emergency funds. Both have checkwriting privileges which makes the money in them more easily and quickly accessible. So my muni bond funds are here to stay, just not as big as they once were.
 
So what kind of equities are you guys putting your money into to get higher dividends?



 
I use Vanguard Tax Exempt Intermediate Muni Fund. Duration on bonds is about 5 years so not as interest rate sensitive as some of the longer duration funds. I have all of my tax deferred in bonds but still need more in after tax accounts to meet my AA. Due to some consulting and deferred comp I am still in the 28% tax bracket. If I drop below that I will rethink the muni etf.
 
Last edited:
I'm in the 15% tax bracket.

I have a good chunk of my fixed income asset allocation in muni bonds. They behave differently than other bond asset classes, so I find them useful for diversification. Like government bonds, they often do reasonably well when the market is tanking (flight to safety), although they sometimes fall out of favor during municipal default scares. I consider them a more conservative bond fund class, although not quite as conservative as US Treasuries. Since they tend to zig while other bond asset classes zag, I often have opportunities to rebalance.

Since the income from muni bonds are not subject to AMT (you have to use AMT-free bond funds), capital gains taxes or the NIIT (net investment income tax) they do provide me tax savings. Just keeping the AGI down helps a lot.
 
I use four muni bond funds varying from high yield to short term for the fixed allocation within my taxable portfolio.
 
cyber888 said:
Muni bond funds - Nuveen and Eaton Vance close-end funds. Yield is 6% - 6.8% (tax exempt yields).







Click to expand...

Ticker symbols would be helpful - they have a lot of different tax exempt funds.

You could even make a list of them, and put those "[ LIST ]" tags to use! :LOL:

-ERD50
 
ERD50 said:
Ticker symbols would be helpful - they have a lot of different tax exempt funds.

You could even make a list of them, and put those "[ LIST ]" tags to use! :LOL:

-ERD50
Click to expand...


ERD50, are you deliberately following all my post ? LOL. Ok, I'm putting you on the LIST :) :dance:



 
cyber888 said:
ERD50, are you deliberately following all my post ? LOL. Ok, I'm putting you on the LIST :) :dance:



Click to expand...

I follow, and comment on LOTS of posts (my post count should make that painfully clear!).

The only thing 'special' about you, is the [-LIST-] tags in all your recent posts. Yes, I'm the curious sort - what the heck is up with that?

And I'm also curious about munis paying 6-8% - what are these, Detroit, PR, etc?

Again, tickers would help. You said you wanted opinions, so yes, tickers would help.

-ERD50
 
I have a pretty large muni position (high six figures) but it pays closer to 3%. I too am curious about the funds you invest in for those returns.
 
To your question about DCAing into the position - there are probably lots of threads on that topic. I'm a lump sum type guy myself, but I understand why some people don't like to do that.

But it is relevant to ask - where's the money now that you'd be investing?
 
You must log in or register to reply here.

Similar threads

E
Trying to determine Fed Tax exemption (%) for funds w/V funds
Replies
5
Views
605
eroscott
E
Brook2
simple viewpoint for taxes with a mix of unpredictable income
Replies
7
Views
513
pb4uski
pb4uski
connor77
Withdrawal Strategy Help Requested
2
Replies
40
Views
4K
urn2bfree
urn2bfree
M
Hello from Suburbs of Chicago, F.I.R.E. goal 2035
Replies
22
Views
892
TheWizard
T
R
Seeking Advice - for retiring at 52.5
2
Replies
44
Views
5K
LateToFIRE
L

Latest posts

Back
Top Bottom