Municipal Bond Forum
Build America Bonds for tax-deferred accounts
Q
I’m about to turn 60. Because I’m past 59 1/2, I was able to annuitize some of my IRAs without paying penalties. I need the income from my IRAs because I can only work part-time now and am not able to make as much money as I could before. Does it make any sense for me to invest my remaining IRA funds to purchase tax-free municipal bonds or invest in a tax-free municipal bond fund? Because all of my IRAs are pre-tax qualified funds, I assume I would have to pay income taxes on any funds that I take out of my IRAs to purchase or invest in anything else.
A
James A. Klotz responds:
You would be ill advised to take any distributions from your IRAs that were not required because, as you say, these funds would be subject to taxation.
As an alternative to buying tax-free bonds outside your IRAs, you may want to consider investing in taxable municipal bonds (BABs) inside these tax-deferred accounts.
BABs produce more income than tax-free bonds and this additional income can grow on a tax-deferred basis until future distributions are required.
It is important to keep in mind, however, that over the life of longer-term bonds, they will sometimes be worth more than you paid for them and sometimes less. Their market value cannot be guaranteed at any given time.
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The responses provided in this forum are meant to address specific questions posed by investors about their municipal bonds and to provide market insight for our general audience. Please note, your investments, objectives, results and experience may differ significantly. Our answers and any potential strategies discussed should not be construed as a solicitation to buy nor sell any security or investment product. All investing entails risk.