|
Post by chang on Dec 28, 2023 12:12:35 GMT
I just happened to open my copy of BG to a random page and this jumped out at me (click to enlarge): . Even in retirement, my taxable dividends push me into a middlish tax bracket. I wonder if I should consider using munis. Frankly, I haven't focused on munis at all. They tend to be longer in duration (except for the ST munis that yield nothing) and I have been reluctant to go long while the yield curve is inverted.
|
|
|
Post by chang on Dec 28, 2023 12:26:30 GMT
Fido's web page for FTABX says:
• 30-Day Yield 3.99% • Tax Equivalent Yield 6.05%
That obviously assumes a 34% tax bracket. Using a more modest 20-25%, the TEY is 4.99-5.32%.
FTBFX is yielding 5.61%. So I conclude I can do better (and perhaps with less risk) using taxable bonds.
|
|
|
Post by Chahta on Dec 28, 2023 15:25:37 GMT
I have always agreed. Calculating a taxable equivalent is only good for the calculation. RMDs and Roth conversions can be affected.
Maybe peons like me can keep a 0% CG rate if AGI is low enough.
|
|
|
Post by chang on Dec 28, 2023 15:56:55 GMT
Also, I think TEY underestimates the advantages of getting a higher taxable yield if you reinvest dividends. The higher yield can be reinvested and compounded throughout the entire year, while taxes are not due until April 15 of the following year.
|
|
|
Post by liftlock on Dec 29, 2023 2:03:15 GMT
I just happened to open my copy of BG to a random page and this jumped out at me (click to enlarge): View Attachment. View AttachmentEven in retirement, my taxable dividends push me into a middlish tax bracket. I wonder if I should consider using munis. Frankly, I haven't focused on munis at all. They tend to be longer in duration (except for the ST munis that yield nothing) and I have been reluctant to go long while the yield curve is inverted. I try to avoid holding bonds in taxable accounts because the income is not tax friendly. I prefer to hold bonds in tax deferred accounts where the income is taxed as ordinary income when withdrawn the same as in a taxable account. Or a Roth account where qualified withdrawals are not taxed. Growth stocks / funds not paying dividends or stocks / funds paying qualified dividends are more tax friendly investments for taxable accounts. Qualified dividends and long term capital gains are taxed at favorable capital gains rates regardless of the income tax bracket one is in.
|
|
|
Post by win1177 on Dec 29, 2023 16:44:22 GMT
My wife and I have switched nearly all our fixed income over to munis in all our accounts except IRA’s and Roth IRA’s. Even though I retired, our investment income still puts us in either the highest or next to highest brackets. It’s a “good problem” to have, but writing those huge estimated tax payments is VERY painful! I have mainly gone with Vanguards muni funds, primarily VWITX and VWALX, to cut down on paying so damn much in taxes. Some years we get a “better” after tax return, other years it’s closer to a wash. But, having that steady “dribble” of tax free income is sure nice!
Win
|
|
|
Post by Chahta on Dec 29, 2023 16:56:21 GMT
I just happened to open my copy of BG to a random page and this jumped out at me (click to enlarge): View Attachment. View AttachmentEven in retirement, my taxable dividends push me into a middlish tax bracket. I wonder if I should consider using munis. Frankly, I haven't focused on munis at all. They tend to be longer in duration (except for the ST munis that yield nothing) and I have been reluctant to go long while the yield curve is inverted. I try to avoid holding bonds in taxable accounts because the income is not tax friendly. I prefer to hold bonds in tax deferred accounts where the income is taxed as ordinary income when withdrawn the same as in a taxable account. Or a Roth account where qualified withdrawals are not taxed. Growth stocks / funds not paying dividends or stocks / funds paying qualified dividends are more tax friendly investments for taxable accounts. Qualified dividends and long term capital gains are taxed at favorable capital gains rates regardless of the income tax bracket one is in. Not following your thought on bonds. They will be taxed no matter. Only the timing changes from when distributed to when withdrawn. Since we are talking munis here, they seem to fit your argument about holding bonds in a taxable account.
|
|
|
Post by steelpony10 on Dec 29, 2023 19:53:32 GMT
Also remember even tax free income (along with all other income) counts towards taxes on SS. More taxes means more net to you so no don’t reduce income to save taxes.
In regards to the OP we now use muni income to further delay depleting our TIRA (full of risk, low values and high cash flow) by bringing those would be taxable assets into a taxable account and raising taxes way higher forever.
Munis are relatively safer and provide more reliable cash flow then your other potentially better investments and can be used to manipulate a TIRA to further delay taxes on any transfers which may also make you more income for longer in your TIRA.
As an amateur investor I see hidden incalculable $ benefits, making money indirectly, when munis are held in a taxable account. We wanted some safer investments to counter other investing risk and we use munis as described above.
|
|
|
Post by liftlock on Dec 30, 2023 20:16:26 GMT
I try to avoid holding bonds in taxable accounts because the income is not tax friendly. I prefer to hold bonds in tax deferred accounts where the income is taxed as ordinary income when withdrawn the same as in a taxable account. Or a Roth account where qualified withdrawals are not taxed. Growth stocks / funds not paying dividends or stocks / funds paying qualified dividends are more tax friendly investments for taxable accounts. Qualified dividends and long term capital gains are taxed at favorable capital gains rates regardless of the income tax bracket one is in. Not following your thought on bonds. They will be taxed no matter. Only the timing changes from when distributed to when withdrawn. Since we are talking munis here, they seem to fit your argument about holding bonds in a taxable account. I should have stated that my comments were directed at holding taxable bonds in a taxable account which the OP had commented on as having better tax equivalent yields. Muni's be can tax efficient when held in a taxable account. But as steelpony10 pointed out, muni income does not escape the rules for including it when determining the taxation of social security benefits, or when calculating MAGI for determining surcharges for Medicare IRMMA. Since Muni income is typically lower than taxable income, it helps reduce the amount of income being included in Social Security and Medicare IRMAA calculations.
|
|