1-800-367-2663
1-800-367-2663
To participate, just send us an e-mail. Be sure to include your name or initials and your state of residence. Posted e-mails may be edited for length and clarity. If you prefer a private response, please note that in your e-mail. Responses are provided by James A. Klotz, president and co-founder of FMSbonds, Inc., a municipal bond specialist for more than 35 years, and other members of the firm as noted.
Postings are listed by date. If you have any questions, please call us at 1-800-FMS-BOND (1-800-367-2663) or e-mail us.
In your discussion of investment yields on premium bonds, you do not mention the loss in principal from purchase price to par value when the bond is called or matures, i.e. a premium bond purchased for, say, 115.00 today will pay par, 100.00, when called or at maturity. Would this not reduce the overall return and, under certain circumstances, negate the additional yield on the premium bond?
J.G.
Am I missing something? By purchasing tobacco bonds as an individual investor, you say that I am helping the states, not the tobacco industry. Wouldn’t it be more accurate to say that I am helping the investment banks that bought the stream-of-payments from the states, so that those banks spread their risk of loss to individuals like me? If no individual bought a bond, wouldn’t the investment banks get all the income, but also incur all the risk of default?
K.K., West Virginia
I could not derive from your article the impact on municipal bondholders. It almost seems as though the article was written more for those who are substantial wage earners, not bondholders. As one who will not currently buy an AMT bond, is there anything in the proposed legislation that would affect me? It seems that your article comes up a little bit short on what the proposed legislation would do to either those that buy AMT bonds, or those that don’t.
K.G., Washington
In your laddering article, you wrote: “The fact is, laddering doesn’t work for municipal bonds. A more prudent approach to tax-free investing, whose wisdom has been borne out over time, is to maximize cash flow with every purchase.” Does that mean it’s better to buy higher interest, long-term tax-free bonds at a premium to maximize cash flow? Or is it better to buy lower interest tax-free bonds at par or a discount whose taxable equivalent yield is higher? That is to say, should I go for the bonds paying the highest interest (which are at a premium) or go for the bonds with the highest taxable equivalent yield?
I read your article on laddering and the example you gave, which stated that if the $100 bond (paying 6%, or $6/100) value dropped to $50, then you could sell the bond for $50 and buy a similar bond paying 6% for $50. However, would this not yield 6% of the $50, or $3 per 100, and so the income would be halved?
M.F., New York
I was under the impression that a loss from the sale of tax-free bonds is not deductible for tax purposes.
S.F., Connecticut
In your reply to the e-mail below, Residency and interest, you state: “Any state with an income tax will tax the interest on ‘out-of-state’ bonds. Naturally, states without income taxes don’t tax bond interest of any kind.” Your answer is not entirely accurate. New Hampshire doesn’t have a personal income tax, but it does tax the interest earned on municipal bonds from other states (but not on New Hampshire muni bonds). This may hold true for other states that do not tax earned income but do levy a tax on residents who earn interest from out-of-state muni bonds.
P.C., Massachusetts
Would you explain the criteria for applying Alternative Minimum Tax (AMT) and how it’s applied? Also, now that the IRS requires that you must add tax-free income to your gross and adjusted income and figure taxes both ways, “tax free” isn’t going to be “tax free” and people will no longer buy tax-free bonds. Am I, and millions of others, missing something? No one seems to be concerned – at least few, if any are talking about it – including your own organization! How are state, county, etc. governments planning to fund their tax-free shortfall? Your response would be sincerely appreciated – not only by me, but by the millions of others who also read and admire your balanced commentaries.
D.D.
I don’t remember reading anything as cogent and as interesting as your Investor Bond Forum. On a separate matter, does North Carolina tax bonds from other states?
J.V., North Carolina
Why are some tax-free municipal bonds subjected to the Alternate Minimum Tax? Shouldn’t they all be tax free?
E.K., Florida
Do you have specific criteria for bonds you’re looking for? Let us know and we’ll e-mail you bonds that fit your needs. There is no charge for this service.
Talk to a Muni Bond Specialist
Call 1-800-367-2663 to find the tax-free bonds for you.