Keep or sell inherited municipal bonds

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
Rob1
Posts: 163
Joined: Thu May 04, 2017 2:57 pm

Keep or sell inherited municipal bonds

Post by Rob1 » Wed Nov 20, 2019 5:45 pm

I'm inheriting some municipal bonds. Should I keep or sell these?

Bond A
  • Face Value $5,000
  • Interest 4.375%
  • Maturity 6/2021
  • Market Value $5,248
Bond B
  • Face Value $10,000
  • Interest 6.125%
  • Maturity 11/2025
  • Market Value $12,229
Personal Details:
  • I do NOT live in the same state as the munis are for
  • My federal marginal tax rate is 22%
  • The value of these munis is insignificant in terms of my overall asset allocation
I have an opinion, but would prefer some input from you fine folks before making a final decision :happy

livesoft
Posts: 68616
Joined: Thu Mar 01, 2007 8:00 pm

Re: Keep or sell inherited municipal bonds

Post by livesoft » Wed Nov 20, 2019 5:57 pm

As with any inherited assets, my opinion is that one should sell them if they do not match your desired and existing asset allocation and investments in any way. Especially don't hold on to them for sentimental reasons. Use their step-up basis to unload for little or no tax cost now before that becomes a problem.
Wiki This signature message sponsored by sscritic: Learn to fish.

User avatar
Stinky
Posts: 2459
Joined: Mon Jun 12, 2017 11:38 am
Location: Sweet Home Alabama

Re: Keep or sell inherited municipal bonds

Post by Stinky » Wed Nov 20, 2019 6:05 pm

Rob1 wrote:
Wed Nov 20, 2019 5:45 pm
The value of these munis is insignificant in terms of my overall asset allocation
Given this, I would sell.

You’re wise to clean up your portfolio by selling and reinvesting per your asset allocation. And you will have minimal tax friction in selling inherited assets.
It's a GREAT day to be alive - Travis Tritt

hudson
Posts: 2049
Joined: Fri Apr 06, 2007 9:15 am

Re: Keep or sell inherited municipal bonds

Post by hudson » Wed Nov 20, 2019 7:24 pm

I agree with the other contributors; I would sell tomorrow.
On the other hand, it wouldn't hurt to hold them as long as it's not any trouble.

Longdog
Posts: 1369
Joined: Sun Feb 09, 2014 6:56 pm
Location: Philadelphia

Re: Keep or sell inherited municipal bonds

Post by Longdog » Wed Nov 20, 2019 7:47 pm

The question to ask yourself is if you'd buy those same bonds if you were given the current market value of them. If not, then sell them. If so, then hold them. Given that you're asking the question in the first place, they probably don't fit in with your current view of what you would choose to hold. So, most likely it's better to sell them than hold them, but also it probably doesn't make a big difference one way or the other.
Steve

123
Posts: 5208
Joined: Fri Oct 12, 2012 3:55 pm

Re: Keep or sell inherited municipal bonds

Post by 123 » Wed Nov 20, 2019 7:55 pm

Sell ASAP. Since the bonds are not for your state there may be an issue of amortizing the bond premium value (the extent to which the value of the bond exceeds par value) if you are in a state with an income tax. Potentially a headache.
The closest helping hand is at the end of your own arm.

Topic Author
Rob1
Posts: 163
Joined: Thu May 04, 2017 2:57 pm

Re: Keep or sell inherited municipal bonds

Post by Rob1 » Wed Nov 20, 2019 8:17 pm

123 wrote:
Wed Nov 20, 2019 7:55 pm
Sell ASAP. Since the bonds are not for your state there may be an issue of amortizing the bond premium value (the extent to which the value of the bond exceeds par value) if you are in a state with an income tax. Potentially a headache.
I hadn't thought of this. Thanks!

Topic Author
Rob1
Posts: 163
Joined: Thu May 04, 2017 2:57 pm

Re: Keep or sell inherited municipal bonds

Post by Rob1 » Wed Nov 20, 2019 8:20 pm

Thanks for all the replies. They have validated my thinking: if these bonds (or similar) aren't part of my current portfolio, then there is likely no good reason for them to be part of my portfolio now

Gill
Posts: 5774
Joined: Sun Mar 04, 2007 8:38 pm
Location: Florida

Re: Keep or sell inherited municipal bonds

Post by Gill » Wed Nov 20, 2019 8:34 pm

I’ll offer a contrary opinion. Anything else I’d say sell but the holdings are small and very near to maturity. You’ll take a beating on an attempted sale. Ignore the stated market value. You won’t get it Just hold them to maturity.
Gill
Cost basis is redundant. One has a basis in an investment | One advises and gives advice | One should follow the principle of investing one's principal

GrowthSeeker
Posts: 714
Joined: Tue May 15, 2018 10:14 pm

Re: Keep or sell inherited municipal bonds

Post by GrowthSeeker » Wed Nov 20, 2019 9:31 pm

Sell unless holding them gives you some sentimental value regarding the person you inherited them from.
Just because you're paranoid doesn't mean they're NOT out to get you.

BuddyJet
Posts: 253
Joined: Mon Jun 24, 2019 8:56 pm

Re: Keep or sell inherited municipal bonds

Post by BuddyJet » Wed Nov 20, 2019 9:57 pm

Gill wrote:
Wed Nov 20, 2019 8:34 pm
I’ll offer a contrary opinion. Anything else I’d say sell but the holdings are small and very near to maturity. You’ll take a beating on an attempted sale. Ignore the stated market value. You won’t get it Just hold them to maturity.
Gill
I’m with Gill on this one. Given the small percentage of portfolio and the yield to maturity, I’d hold also as long as A- rating or better
People say nothing is impossible. I do nothing all day.

tj
Posts: 2687
Joined: Thu Dec 24, 2009 12:10 am

Re: Keep or sell inherited municipal bonds

Post by tj » Wed Nov 20, 2019 11:07 pm

Why would you sell at those interest rates? I'd hold and collect the interest.

CRTR
Posts: 278
Joined: Sat Apr 11, 2015 1:15 pm

Re: Keep or sell inherited municipal bonds

Post by CRTR » Wed Nov 20, 2019 11:50 pm

tj wrote:
Wed Nov 20, 2019 11:07 pm
Why would you sell at those interest rates? I'd hold and collect the interest.
+1

Topic Author
Rob1
Posts: 163
Joined: Thu May 04, 2017 2:57 pm

Re: Keep or sell inherited municipal bonds

Post by Rob1 » Thu Nov 21, 2019 1:38 am

CRTR wrote:
Wed Nov 20, 2019 11:50 pm
tj wrote:
Wed Nov 20, 2019 11:07 pm
Why would you sell at those interest rates? I'd hold and collect the interest.
+1
Default and inflation risk, I suppose.

Topic Author
Rob1
Posts: 163
Joined: Thu May 04, 2017 2:57 pm

Re: Keep or sell inherited municipal bonds

Post by Rob1 » Thu Nov 21, 2019 2:40 am

Gill wrote:
Wed Nov 20, 2019 8:34 pm
I’ll offer a contrary opinion. Anything else I’d say sell but the holdings are small and very near to maturity. You’ll take a beating on an attempted sale. Ignore the stated market value. You won’t get it Just hold them to maturity.
Gill
Good point. Yes, unlikely I’d get the stated market value.

mjb
Posts: 129
Joined: Sat Nov 30, 2013 11:43 am

Re: Keep or sell inherited municipal bonds

Post by mjb » Thu Nov 21, 2019 7:40 am

I'm with the last few posters. It isn't a huge portion of your portfolio. The interest rate is good. One forms due in a year and a half anyway. Fees and spreads will probably cut into any gain.

Unless interest rates significantly drop like to near zero and unless there were lreally low rated bonds, if it was me, I would keep them.

livesoft
Posts: 68616
Joined: Thu Mar 01, 2007 8:00 pm

Re: Keep or sell inherited municipal bonds

Post by livesoft » Thu Nov 21, 2019 7:43 am

Gill wrote:
Wed Nov 20, 2019 8:34 pm
You’ll take a beating on an attempted sale.
Right now that statement is conjecture. Why not see what whether that is true or not? Should be easy to find out.
Wiki This signature message sponsored by sscritic: Learn to fish.

Gill
Posts: 5774
Joined: Sun Mar 04, 2007 8:38 pm
Location: Florida

Re: Keep or sell inherited municipal bonds

Post by Gill » Thu Nov 21, 2019 8:05 am

livesoft wrote:
Thu Nov 21, 2019 7:43 am
Gill wrote:
Wed Nov 20, 2019 8:34 pm
You’ll take a beating on an attempted sale.
Right now that statement is conjecture. Why not see what whether that is true or not? Should be easy to find out.
On a small odd lot muni you can bet the farm you’ll take a good haircut.
Gill
Cost basis is redundant. One has a basis in an investment | One advises and gives advice | One should follow the principle of investing one's principal

User avatar
Wiggums
Posts: 1941
Joined: Thu Jan 31, 2019 8:02 am

Re: Keep or sell inherited municipal bonds

Post by Wiggums » Thu Nov 21, 2019 8:30 am

I agree with Gill. I wound not sell unless the price is right.

Good luck to you...

RubyTuesday
Posts: 255
Joined: Fri Oct 19, 2012 11:24 am

Re: Keep or sell inherited municipal bonds

Post by RubyTuesday » Thu Nov 21, 2019 11:21 am

What state? Maybe someone on BH would buy

elainet7
Posts: 347
Joined: Sat Dec 08, 2018 1:52 pm

Re: Keep or sell inherited municipal bonds

Post by elainet7 » Thu Nov 21, 2019 12:04 pm

hold to maturity no brainer

BuddyJet
Posts: 253
Joined: Mon Jun 24, 2019 8:56 pm

Re: Keep or sell inherited municipal bonds

Post by BuddyJet » Thu Nov 21, 2019 12:25 pm

RubyTuesday wrote:
Thu Nov 21, 2019 11:21 am
What state? Maybe someone on BH would buy
Out of curiosity, is a person to person bond sale possible?
People say nothing is impossible. I do nothing all day.

Topic Author
Rob1
Posts: 163
Joined: Thu May 04, 2017 2:57 pm

Re: Keep or sell inherited municipal bonds

Post by Rob1 » Thu Nov 21, 2019 2:02 pm

Darn, you all have me double guessing my original plan :?

User avatar
Stinky
Posts: 2459
Joined: Mon Jun 12, 2017 11:38 am
Location: Sweet Home Alabama

Re: Keep or sell inherited municipal bonds

Post by Stinky » Thu Nov 21, 2019 2:39 pm

Rob1 wrote:
Thu Nov 21, 2019 2:02 pm
Darn, you all have me double guessing my original plan :?
Looks like BH opinion is about evenly divided. I can certainly see both sides of the decision.

Let us know what you decide to do.
It's a GREAT day to be alive - Travis Tritt

Carol88888
Posts: 191
Joined: Wed Jan 24, 2018 2:24 am

Re: Keep or sell inherited municipal bonds

Post by Carol88888 » Thu Nov 21, 2019 3:15 pm

Don't sell. You won't get a good price for something this small. Also, the bonds you hold have high interest rates. Just keep them. They'll probably be called away eventually.

not4me
Posts: 695
Joined: Thu May 25, 2017 3:08 pm

Re: Keep or sell inherited municipal bonds

Post by not4me » Thu Nov 21, 2019 7:18 pm

Rob1 wrote:
Wed Nov 20, 2019 8:17 pm
123 wrote:
Wed Nov 20, 2019 7:55 pm
Sell ASAP. Since the bonds are not for your state there may be an issue of amortizing the bond premium value (the extent to which the value of the bond exceeds par value) if you are in a state with an income tax. Potentially a headache.
I hadn't thought of this. Thanks!
OP, regardless of your decision, I would encourage you to get a handle on the tax implications. Don't know your state situation, so I'll just touch on federal. You didn't mention cost basis, but that is critical. The interest payments won't be taxable by the feds as income, but do affect MAGI & perhaps affects AMT (likely a long shot there) . However, IF you sell, that will create a capital gain/loss. Assuming the bonds were at a premium when you inherited, the IRS will require you to adjust your cost basis to reflect the amortization of that premium as you receive payments. If you've already received one/some, be sure to consider that.

If you aren't familiar with individual municipal bonds, the taxation & trading of them can be surprising.

btw. without knowing all the details, I can't imagine I'd sell them this close to maturity....

GrowthSeeker
Posts: 714
Joined: Tue May 15, 2018 10:14 pm

Re: Keep or sell inherited municipal bonds

Post by GrowthSeeker » Fri Nov 22, 2019 7:07 pm

My opinion (sell unless there is some sentimental value) is based on:
- I'm not that knowledgeable about individual bonds
- It's a small part of your portfolio
- I can guess there might be significant aggravation dealing with the out of state taxes.

Isn't the total annual income expected from these 2 bonds in the ballpark of $1,000?

re capital gains: since it is inherited, doesn't a stepped up basis mean there would be hardly any gain or loss if you sell now? And if you "take a haircut" selling them, would that be a short term capital loss relative to the valuation on the date of death?
Just because you're paranoid doesn't mean they're NOT out to get you.

Post Reply