Why not Munis in taxable vs TB in IRA?
Why not Munis in taxable vs TB in IRA?
So I hold some Total Bond Admiral in my tax deferred accounts. TB yields 2.35% and has an average duration of 5.2 years.
Intermediate Term Admiral Index has a similar yield and duration.
Looking at Intermediate Term Tax Exempt Admiral, it has a yield of 2.59% and a duration of 5.4 years.
It seems to me I would be better off holding the muni fund in taxable at any tax bracket! FWIW I am in the 35% bracket and subject to AMT. Checked and it holds 0% AMT securities.
What am I missing? Should I sell Total Bond in tax deferred to buy TSM and sell TSM in taxable to hold the muni fund?
I guess where I am going with this, if muni bonds pay more nominal interest than taxable bonds, why would I own taxable bonds?
Intermediate Term Admiral Index has a similar yield and duration.
Looking at Intermediate Term Tax Exempt Admiral, it has a yield of 2.59% and a duration of 5.4 years.
It seems to me I would be better off holding the muni fund in taxable at any tax bracket! FWIW I am in the 35% bracket and subject to AMT. Checked and it holds 0% AMT securities.
What am I missing? Should I sell Total Bond in tax deferred to buy TSM and sell TSM in taxable to hold the muni fund?
I guess where I am going with this, if muni bonds pay more nominal interest than taxable bonds, why would I own taxable bonds?
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Re: Why not Munis in taxable vs TB in IRA?
A few people actually do what you propose (e.g. TFB).
Most people think there is a risk story behind this.
Most people think there is a risk story behind this.
Re: Why not Munis in taxable vs TB in IRA?
In any case, TBM and muni's are not the same bonds. Even at the same duration the properties are not the same; apparently the market agrees that muni's need to return more to justify the investment, whatever the tax bracket.natureexplorer wrote:A few people actually do what you propose (e.g. TFB).
Most people think there is a risk story behind.
Re: Why not Munis in taxable vs TB in IRA?
There's some more things going on. The Fed is a major buyer of Treasuries, with the explicit objective of forcing down long-term interest rates on Treasuries. They're not going to start buying munis no matter what the spread is...neither are foreign banks (central or commercial). For these large players, liquidity and market size is what matters. To the extent that these don't matter to individuals, it can be a free lunch.dbr wrote:In any case, TBM and muni's are not the same bonds. Even at the same duration the properties are not the same; apparently the market agrees that muni's need to return more to justify the investment, whatever the tax bracket.natureexplorer wrote:A few people actually do what you propose (e.g. TFB).
Most people think there is a risk story behind.
Most of my posts assume no behavioral errors.
Re: Why not Munis in taxable vs TB in IRA?
TBM yield has gone down as treasury yield has gone down. Muni yield has not gone down as much,
but there is more risk than treasuries. Corporate bonds, of course, have greatest yield and risk.
I'm no expert, but it does look like municipals are in the sweet spot at the moment.
- Brian
but there is more risk than treasuries. Corporate bonds, of course, have greatest yield and risk.
I'm no expert, but it does look like municipals are in the sweet spot at the moment.
- Brian
Re: Why not Munis in taxable vs TB in IRA?
You compare apples and oranges.... TBM <> Munis. (I believe you know this!)dickenjb wrote:So I hold some Total Bond Admiral in my tax deferred accounts. TB yields 2.35% and has an average duration of 5.2 years.
Intermediate Term Admiral Index has a similar yield and duration.
Looking at Intermediate Term Tax Exempt Admiral, it has a yield of 2.59% and a duration of 5.4 years.
It seems to me I would be better off holding the muni fund in taxable at any tax bracket! FWIW I am in the 35% bracket and subject to AMT. Checked and it holds 0% AMT securities.
What am I missing? Should I sell Total Bond in tax deferred to buy TSM and sell TSM in taxable to hold the muni fund?
I guess where I am going with this, if muni bonds pay more nominal interest than taxable bonds, why would I own taxable bonds?
- That said, if you don't mind having your bond exposure in the latter, and the return/risk appeals to you, then by all means you can go with Munis in taxable and Equities in tax-advantaged.
- If you do this, there's an added benefit since you save taxes on Equity distributions (dividends). For instance, Total Stock paid the last 12 months:Vanguard wrote:Dividend $0.13900 09/23/2011
Dividend $0.12800 06/24/2011
Dividend $0.12800 03/25/2011
Dividend $0.16200 12/22/2010
Landy |
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Re: Why not Munis in taxable vs TB in IRA?
Thanks to all for the quick answers. Yes I understand that munis and TB are different securities - much of TB is risk free treasuries although there are some corporates in there and MBS. It does seem to me for this 35% bracket individual (me) that intermediate munis are tres attractive right now wrt to taxable bonds.
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Re: Why not Munis in taxable vs TB in IRA?
The Greek once thought their own government's debt is risk-free too. S&P tells us it ain't so.dickenjb wrote:risk free treasuries
Re: Why not Munis in taxable vs TB in IRA?
Here's an interesting chart comparing muni and Treasury yields:
http://www.marketoracle.co.uk/images/20 ... hart-b.gif
FYI, the majority of my bond holdings are in Munis
Brad
http://www.marketoracle.co.uk/images/20 ... hart-b.gif
FYI, the majority of my bond holdings are in Munis
Brad
Most of my posts assume no behavioral errors.
Re: Why not Munis in taxable vs TB in IRA?
An added benefit to holding TSM in a (roth) IRA is that the assets with the highest growth expectancy can be withdrawn tax-free at retirement.
Re: Why not Munis in taxable vs TB in IRA?
This is something that I've flip-flopped with for a while now... and whenever I can't make up my mind, I usually split the difference. So I'm thinking I will probably start doing 1/4 or so munis, the rest int. treasuries. Or there about. I don't see that big a risk in a fund. Individuals might be a different thing.
Re: Why not Munis in taxable vs TB in IRA?
And our friends at Standard and Poor once told us that bundled, sub-prime mortgages were "AAA."natureexplorer wrote:The Greek once thought their own government's debt is risk-free too. S&P tells us it ain't so.dickenjb wrote:risk free treasuries
How did that work out?
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Re: Why not Munis in taxable vs TB in IRA?
You shouldn't compare your current high tax rate with tax-deferred money that may well be taxed at a much lower rate when withdrawn in retirement.
Best Regards - Mel |
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Re: Why not Munis in taxable vs TB in IRA?
Can someone tell me why my Muni ladder cost basis has improved about 3.3% avg. over the past 2 yrs??
Is this just more people buying Muni's??
jerry
Is this just more people buying Muni's??
jerry
Re: Why not Munis in taxable vs TB in IRA?
Exactly where my head is at. Not wholesale selling of Total Bond Market but just putting a fraction of my fixed income allocation into VWIUX. In taxable of course.dave66 wrote:This is something that I've flip-flopped with for a while now... and whenever I can't make up my mind, I usually split the difference. So I'm thinking I will probably start doing 1/4 or so munis, the rest int. treasuries. Or there about. I don't see that big a risk in a fund. Individuals might be a different thing.
Taylor thanks for pointing out the tax bracket thingy. Unfortunately (or fortunately?) I expect to be in the 25% bracket even many years into retirement. The 35% thing is an artifact of some deferred compensation I am receiving for the next couple of years, then I expect about 8 years of low bracket and Roth conversions, followed by 25% once SS and wife's pension and RMD's kick in.
Re: Why not Munis in taxable vs TB in IRA?
It's funny, I have a way harder time with bonds than stocks. The stock stuff is kind of a no-brainer, but the bonds always seem to be a more difficult choice. Especially if you're talking about taxable. I have a low bracket now, but climbing... and I live in CA (fairly high tax). So in taxable, the whole thing between treasuries, tax exempt and the TIPS fund, starts being 6 of one, half dozen... when it comes to how you look at taxes and other things. You can look at it 10 ways and make yourself crazy. I was comparing the 5-10 year on numerous bonds last night. Honestly, most of the time in past history at least, the munis don't really seem to serve a huge purpose. And just about everything except the treasuries took a dive in 08, like everything else. Seems like... If you're main goal is protection against major dips, those are your best bet. The other bonds perform similar to stocks in a way, just not extremely. So I guess it comes down to what you think the purpose of bonds are. I think it's easy to get hung up on the whole tax thing and forget about that.
Re: Why not Munis in taxable vs TB in IRA?
Maybe stocks vs. bonds is like steak and potatoes. How you want your bonds is like rare vs medium rare, a question that can raise serious debate.