Bond fund question that I'll ask my accountant, too

[DenverCraig]

I had to sell some company stock in a non-retirement account last year. I figured since it was non-retirement (and I'm close to ER) I'd use the proceeds to buy shares of a tax-exempt bond fund, and have that be part of the low-risk part of my AA.

I did that, bought some ABHYX, which pays monthly dividends that are exempt from federal income tax. Nice. HOWEVER, what I didn't think about is state income tax. The fund itself invests in municipal bonds from around the country. Do I have to pay state tax on the dividends? (I think I intended for the dividends to be automatically reinvested, but apparently didn't push the right button when I placed the order). We're not talking huge amounts here, I'm just trying to understand what's what.

Thanks for any help!

 

[COcheesehead]

You will pay state tax on ABHYX, but it’s 4.6% on the distributions. You should be happy with that one. It’s been up nicely during the chaos of the market. Relax, enjoy.

 

[jazz4cash]

I presume you will not pay state tax on the portion of the fund invested in your home state’s bonds and the fund will publish a list of the percentage invested per state. I use a home state muni fund that pays ~2.5% apr. so it is “triple tax free” eg Fed, State, local.

 

[SecondCor521]

I had to sell some company stock in a non-retirement account last year. I figured since it was non-retirement (and I'm close to ER) I'd use the proceeds to buy shares of a tax-exempt bond fund, and have that be part of the low-risk part of my AA.

I did that, bought some ABHYX, which pays monthly dividends that are exempt from federal income tax. Nice. HOWEVER, what I didn't think about is state income tax. The fund itself invests in municipal bonds from around the country. Do I have to pay state tax on the dividends? (I think I intended for the dividends to be automatically reinvested, but apparently didn't push the right button when I placed the order). We're not talking huge amounts here, I'm just trying to understand what's what.

Thanks for any help!

As jazz4cash said, you probably won't pay taxes on the portion of your dividends which are sourced from inside your home state. But check your state income tax laws or with a local CPA or EA.

Usually the mutual funds publish the additional tax statement somewhere on their website in January or February each year listing how much is federally sourced and how much is sourced from each state. You basically multiply the applicable percentages by your total income from the fund and put that on the appropriate line(s) of your tax return(s).