question about tax-exempt bond funds (vwiux or vteax)

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PineForest
Posts: 11
Joined: Thu Jan 23, 2020 5:12 pm

question about tax-exempt bond funds (vwiux or vteax)

Post by PineForest »

New investor here with some basic questions.

a) Why/how are these bond funds (vxiux and vteax) tax-exempt?

b) I read that these funds are exempt from federal tax. Does this mean that I would have to pay state tax on them? I live in MN and think that MN uses federal adjusted income as basis for its taxation.

c) Does the fact that these are "tax-exempt" funds mean that I would not have to pay any capital gains tax on them ever and whatsoever, whether short term or long term?

d) I am also wondering if anyone here has any experience with or opinions about the funds listed above.

Thanks much,

Pine Forest
ruud
Posts: 320
Joined: Sat Mar 03, 2007 1:28 pm
Location: san francisco bay area

Re: question about tax-exempt bond funds (vwiux or vteax)

Post by ruud »

PineForest wrote: Sun Mar 08, 2020 5:28 pm a) Why/how are these bond funds (vxiux and vteax) tax-exempt?

b) I read that these funds are exempt from federal tax. Does this mean that I would have to pay state tax on them? I live in MN and think that MN uses federal adjusted income as basis for its taxation.

c) Does the fact that these are "tax-exempt" funds mean that I would not have to pay any capital gains tax on them ever and whatsoever, whether short term or long term?

d) I am also wondering if anyone here has any experience with or opinions about the funds listed above.
a) The Wiki article on municipal bonds explains this.
b) Unless you have a state-specific fund, you'd owe state income tax on the interest.
c) No, capital gains taxes work just as any other fund. Only the interest is tax-exempt.
.
mjb
Posts: 179
Joined: Sat Nov 30, 2013 11:43 am

Re: question about tax-exempt bond funds (vwiux or vteax)

Post by mjb »

As previously mentioned, check the wiki.

In general, tax exempt bonds start to look good once Federal tax rates exceed ~25% .

Otherwise, they function like other bonds of similar credit rating and terms
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