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401(k) investors: Why boring municipal bonds are exciting for investors
With the recent tax law changes, you have to be careful, especially if you're living in a high tax state.
Using the same yields as in the article, 2.88% Treasury and 2.52% for a national muni fund, the after tax yields can be close, and may not compensate for the additional risk of the single A rated Vanguard etf VTEB.
Take a single tax payer in California, with $60K taxable income. Because of the $10K SaLT limitation on deductions, this property owner can't deduct the state taxes on the muni bond fund.
After tax yield on Treasury: (1 - 22%) x 2.88% = 2.24% After tax yield on muni fund: (1 - 9.3%) x 2.52% = 2.28%
Buying an individual in-state muni bond can get rid of the local tax, but it adds single security risk. Building a whole portfolio of individual munis can help with that, though that requires a substantial commitment and there's still single state risk.
All in all, there are several factors to consider. Even with current rates, the best choice may not be quite as obvious as the article suggests.
Comments
Using the same yields as in the article, 2.88% Treasury and 2.52% for a national muni fund, the after tax yields can be close, and may not compensate for the additional risk of the single A rated Vanguard etf VTEB.
Take a single tax payer in California, with $60K taxable income. Because of the $10K SaLT limitation on deductions, this property owner can't deduct the state taxes on the muni bond fund.
After tax yield on Treasury: (1 - 22%) x 2.88% = 2.24%
After tax yield on muni fund: (1 - 9.3%) x 2.52% = 2.28%
Buying an individual in-state muni bond can get rid of the local tax, but it adds single security risk. Building a whole portfolio of individual munis can help with that, though that requires a substantial commitment and there's still single state risk.
All in all, there are several factors to consider. Even with current rates, the best choice may not be quite as obvious as the article suggests.
Original comment removed.