Passive Income Vol. 2: Municipal Bonds

Tax-free income and protection of capital?!?!… Its not an IUL, its municipal bonds!!

Munis can be a great buy-and-hold component of your portfolio which may generate attractive levels of passive income for investors in high tax brackets via tax-free yield.

The table below shows some muni index funds and the after-tax yield for an investor with a total effective tax rate of 35%.

Some advantages of muni bonds:
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1) Attractive yield for investors in high tax brackets
2) Diversification from stocks
3) Lower default rates than corporate bonds

Some disadvantages of muni bonds:
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1) May underperform in a rising rate environment
2) Limited liquidity on individual muni bonds
3) Interest counts as income in calculating the taxable amount of your Social Security income, which may increase the amount you owe
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Before investing in munis, please consult an investment professional to see if they are a good fit for your unique situation. If you have any questions about munis feel free to schedule a meeting here.