I held several muni bond funds while interest rates were very low and they were worthwhile, even when my marginal tax rate was only 12%. Since interest rates spiked several years ago, I sold all of my muni funds because their yields couldn’t compete with taxable alternatives, even when our tax rate increased to 22%. Even with the decline in interest rates this year, muni fund yields still can’t compete with yields from taxable alternatives such as bond funds, short term bonds, CDs, Treasuries, you name it. Are muni funds only worthwhile for investors in higher tax brackets (eg, higher than 24%)?
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The common thinking is that those in higher tax rates would benefit from holding munis, of course.
I'm in one of the higher brackets and only have a small position in a muni fund that my parents got for me back in the early '80s. Otherwise, I generally prefer the straight 15% tax on qualified dividends from common and preferred stocks .. less to think about, too.
If I had a gazillion dollars, I'd certainly throw a large chunk into individual munis, though.....
as someone with below avg state taxes, i shifted my largest asset class from short-term active bond funds to tax-free analogs, over the past ~12 months.
- wanted to simplify\avoid as many stealth taxes , as these have high step functions which are harder to keep track of triggering.
- wanted an asset haven from direct gop grift\nonsense over the next 3+ years, which was made final when attempts failed in budget.
- wanted an opportune window for 1-2 large roth conversions.
although somewhat offset by higher rates in money mkt - type funds, i believe the simplicity of only having 1-2 taxfree funds will be a realized. even this slow shift has garnered a much lower running rate for taxable income.
see also most recent wealthtrack for a good update on muni\taxfree !
I use the following table…
https://documents.nuveen.com/Documents/Nuveen/Default.aspx?uniqueId=05d78da4-0218-457f-ba81-65f473616bfa
The munis I use routinely, NUV and VCRM have current distribution rates of 4.34% and 3.81% respectively, certainly sufficient to warrant a position in lieu of a taxable bond or MM.
If you’d consider a CEF which uses leverage, I also use NAD, with a 7.21% distribution rates.