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IRAs and munis
Q
I have been retired since age 55 and done reasonably well on my investments. As I approach the magic age of 59 ½, I am considering moving some of my money into bonds with the hope of just living off the dividend income. Since the vast part of my investments are in IRAs, is there any advantage of buying municipal bonds inside the IRAs? I thought that the dividends that I would be taking might have some tax advantage.
A
James A. Klotz responds:
As a rule, municipal bonds are not an appropriate investment for a qualified account (IRA) because the account itself enjoys “tax-deferred” status, but distributions are subject to taxation regardless of the source of income (tax-free bonds). Taxable fixed-income securities, such as corporate bonds or government agencies, will invariably provide a higher gross return than munis.
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