By Brian Shire

Taxes today are a real bear to deal with.

You have taxes on property, taxes for groceries, even taxes when you buy a soda at your local gas station, whereby you pay a sales tax and possibly a recycling tax assessed by your state … just for a soda?!

With inflation at moderate levels and climbing and taxes increasing each year, investors are challenged with finding options for their investing needs while keeping the tax man at bay.

One option is to maximize your employer plan, but that also will create a tax burden in the future when you take distributions from those assets. Another is to invest in a vehicle like a ROTH IRA, but this has income limits and only allows for a small deposit each year per individual.

Enter Municipal Bonds! Municipal Bonds or “Munis” are products with a history that dates back as far as the early 1800’s with the first recorded municipal bond, a general obligation bond, originally issued by the City of New York for a canal project.

Municipal debt can range from use by states and local governments, to US territories, cities, counties, districts and so on. Typically there are two main types of muni bonds: General Obligation and Revenue Bonds. The significant differences between them are General Obligation or “GO” bonds are supported or “backed” by the full faith and credit of the issuer, with an added appeal to the investor,  whereby the issuer may also use taxing power in order to provide the interest to the lender. Revenue Bonds however, derive their income from revenue based projects which include but are not limited to toll roads, bridges, airports, water and sewer facilities and so on.

There are a variety of choices when deciding on how to buy a muni bond. An investor can pull their assets together in a tax-exempt mutual fund (tax- exempt mutual fund income is exempt from federal taxes, but depending on the state the bonds are issued, may include tax liabilities if you own a bond portfolio in state in which you don’t reside) and potentially reduce risk by including several issues per fund, in some instances including hundreds of bonds in one portfolio. Another option is to buy the bonds directly. This style may include some skill and knowledge of fixed income where you don’t have a portfolio of bonds, or a manager creating and keeping watch of the products you own. There are also differences in the limitations an investor may experience with individual bond purchases as these have minimums (usually around 5,000 per bond) to get into that particular product. You would want to have a detailed conversation with your financial advisor should you choose to buy bonds directly.

As with any security, muni bonds have some risks associated with them that could include reduction or loss of principal, fluctuation of value, inconsistent distributions and even default. You would want to consult your tax professional to understand any tax liabilities you may encounter as well.

If you would like to understand these products better feel free to call me to make an appointment.


Brian-Shire-4L-magazine-san-diego

Brian A. Shire
Independent Financial Group
619.534.4240 or email at brian@wealthalli.com

Registered representative offering securities and advisory services through Independent Financial Group, LLC (IFG), a registered broker-dealer and investment advisor. Member FINRA and SIPC. IFC and Wealth Alliance, LLC are unaffiliated entities.
OSJ Branch: 12671 High Bluff Drive, Ste. 200 San Diego, CA 92130