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USAA has three flavors of national munis...USSTX (Short), USATX (Intermediate), and USTEX (Long)...They are available through Vanguard brokerage NTF. They also have a fund USBLX, USAA Growth and Tax Strategy, which blends munis for tax purposes with growth companies (like Apple) for capital appreciation.
One could do this themselves by pairing a growth fund like USNQX (Nasdaq Index) with one of these three munis.
The chart below attempts to illustrate the strategy. As the growth fund (USNQX) outperforms USTEX profits would be taken. When the growth fund (USNQX) underperforms the bond fund, (USTEX) would be sold and DCA back into the growth fund (USNQX). Also, on a periodic basis the Muni Bond fund can be sold to provide tax free income.
I Like to position my growth funds in my Roth account to avoid LT and ST capital gains taxes when USNQX is periodically sold. I take distributions from my Roth account when my taxable account needs replenishing. These distributions are considered tax free so long as one follows the IRS guidelines for Roth distibutions. I try to keep the taxable account funded to provide 6 months of income needs. This taxable account can also buy (DCA) into any new growth funds during the next tax year. These growth funds can later be rolled over into the Roth account "in kind" as a Roth contribution for that tax year. Since these growth shares are not sold but rather "rolled over" "in kind", there is no taxable event. Know your Roth contribution limits.
Reply to @bee: I believe sales of municipal bond fund shares are subject to capital gains tax (or loss), just like sales of any other mutual fund. Only the interest income (distributions) from municipal bonds are tax exempt.
Reply to @claimui: Thanks for bringing this to my attention...captial appreciation has been a good slug of muni bond funds performance this year. Back to the drawing board on part of this strategy...the tax man never sleeps.
Comments
USAA has three flavors of national munis...USSTX (Short), USATX (Intermediate), and USTEX (Long)...They are available through Vanguard brokerage NTF. They also have a fund USBLX, USAA Growth and Tax Strategy, which blends munis for tax purposes with growth companies (like Apple) for capital appreciation.
One could do this themselves by pairing a growth fund like USNQX (Nasdaq Index) with one of these three munis.
The chart below attempts to illustrate the strategy. As the growth fund (USNQX) outperforms USTEX profits would be taken. When the growth fund (USNQX) underperforms the bond fund, (USTEX) would be sold and DCA back into the growth fund (USNQX). Also, on a periodic basis the Muni Bond fund can be sold to provide tax free income.
I Like to position my growth funds in my Roth account to avoid LT and ST capital gains taxes when USNQX is periodically sold. I take distributions from my Roth account when my taxable account needs replenishing. These distributions are considered tax free so long as one follows the IRS guidelines for Roth distibutions. I try to keep the taxable account funded to provide 6 months of income needs. This taxable account can also buy (DCA) into any new growth funds during the next tax year. These growth funds can later be rolled over into the Roth account "in kind" as a Roth contribution for that tax year. Since these growth shares are not sold but rather "rolled over" "in kind", there is no taxable event. Know your Roth contribution limits.
Thanks for bringing this to my attention...captial appreciation has been a good slug of muni bond funds performance this year. Back to the drawing board on part of this strategy...the tax man never sleeps.