Muni Bond Fund -- New Jersey resident

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Muni Bond Fund -- New Jersey resident

Post by TomP10 » Thu Oct 31, 2019 6:56 am

I have run out of tax-advantaged space for my bond holdings. I need to start using holding some bonds in my taxable brokerage account.

I am at the 35% Federal tax rate (marginal rate) and 6.4% State tax rate.

Any advice on what fund to use? I use Total Bond (VBTLX) in my tax advantaged accounts. I am wondering if I should stick with that... or perhaps switch to a municipal bond fund. If a muni fund, which one do you recommend?

Thanks in advance for your advice.
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Re: Muni Bond Fund -- New Jersey resident

Post by Garth Knight » Thu Oct 31, 2019 7:00 am

Howdy Neighbor,

You may want to check out VNJTX. It is a low cost municipal bond fund that provides federally tax-exempt and New Jersey state tax-exempt income.

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Re: Muni Bond Fund -- New Jersey resident

Post by retiredjg » Thu Oct 31, 2019 7:06 am

Vanguard has a state specific fund for NJ. ... file/VNJTX

Consider combining that with a short term fund for the whole US - to reduce some of the interest rate risk of the long term NJ fund.

You should not use a taxable bond fund such as total bond market index in a taxable account while in your high tax bracket because it causes you to pay taxes on the dividends.

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Re: Muni Bond Fund -- New Jersey resident

Post by smackboy1 » Thu Oct 31, 2019 12:48 pm

Not a simple question to answer for a few reasons:

- Before taking taxes into consideration, think about the risk you want to take and how it fits into the overall asset allocation.

- Muni bonds can be safe, but they are not the same as treasury bonds. An example is the pension liabilities some states may face. Another is that some states are not as financially secure as others. NJ is a state that has not been exactly described as financially rock solid.

- What maturities? Short, intermediate, long? How much volatility is acceptable? Interest rate risk? VNJTX invests in long term debt.
Disclaimer: nothing written here should be taken as legal advice, but I did stay at a Holiday Inn Express last night.

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Re: Muni Bond Fund -- New Jersey resident

Post by mary1492 » Thu Oct 31, 2019 1:50 pm

Last edited by mary1492 on Wed Dec 04, 2019 10:24 pm, edited 1 time in total.

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Re: Muni Bond Fund -- New Jersey resident

Post by MikeG62 » Thu Oct 31, 2019 5:12 pm

Big fan of muni bonds in taxable account for someone in high marginal tax bracket, but I agree that muni bond yields are quite low and have been for well over a year now. I hold a large portfolio of individual muni bonds (over 3 dozen) from issuers both within NJ and out of state. Having said this, I’ve not bought an individual muni bond in over a year now. In fact, the place where I source my muni’s hasn’t even offered me one to consider in that period of time. Yields are just not compelling.

So what I am doing instead? Traditional CD’s. Also, opened an account at Vanguard this summer to purchase shares in VWALX (VG high yield national muni fund).

You might want to consider about opening a 36-month CD at PSECU (see link here viewtopic.php?f=10&t=292085).

You could opt for the add-on feature and funnel additional funds into the CD as they come available.
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Re: Muni Bond Fund -- New Jersey resident

Post by grabiner » Fri Nov 01, 2019 9:56 pm

If you hold Treasury bonds in your IRA, NJ won't tax the gains, even on withdrawal. This might be a better option for some of your bonds. (However, if you retire in a state other than NJ, you will pay state tax on the entire IRA withdrawal.)

If you have an HSA, Treasury bonds are particularly attractive, as NJ doesn't recognize HSAs but does exempt Treasury bonds from taxation.

If you do hold bonds in your taxable account, I would recommend 50% Vanguard Limited-Term Tax-Exempt and 50% NJ Long-Term Tax-Exempt. This puts only half your bonds in NJ, but more than half your bond interest exempt from NJ tax. (And NJ won't even tax capital gains on the NJ muni fund.)
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