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Posted by Jack Deuce on April 26, 2009, 3:16 pm
Is there such an investment that is exempt from both Federal and State
tax?
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Posted by Dave on April 26, 2009, 3:34 pm
wrote:
> Is there such an investment that is exempt from both Federal and State
> tax?
Municipal bonds are free of federal income tax, and often are not
taxed in their state of origin.
Dave
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Posted by Jack Deuce on April 28, 2009, 3:31 pm
Can you recommend a website/broker that may give me more information?
I live in Oklahoma but can't find any bonds that are exempt from both
Fed and State (OK).
wrote:
>wrote:
>> Is there such an investment that is exempt from both Federal and State
>> tax?
>
>Municipal bonds are free of federal income tax, and often are not
>taxed in their state of origin.
>
>Dave
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Posted by Douglas Johnson on April 28, 2009, 4:02 pm
>Can you recommend a website/broker that may give me more information?
>I live in Oklahoma but can't find any bonds that are exempt from both
>Fed and State (OK).
A Google search on "oklahoma municipal bond fund" without the quotes turned up:
http://www.integrityfunds.com/PortalIntegrityFunds/Default.aspx?tabindex=1&tabid=44&fund=64
among others.
-- Doug
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Posted by Mark Freeland on April 28, 2009, 11:09 pm
> A Google search on "oklahoma municipal bond fund" without the quotes
> turned up:
>
>
http://www.integrityfunds.com/PortalIntegrityFunds/Default.aspx?tabindex=1&tabid=44&fund=64
>
> among others.
The linked fund, Oklahoma Muni (OKMUX), is the only OK muni bond M* lists.
The google search does turn up a number of funds but only some of their
holdings, often a small amount, is in OK bonds. (There is a fund that is
designed to be state/federal tax exempt in all 50 states, Franklin Double
Tax Free Income (FPRTX), but because it invests heavily in Puerto Rico,
which is BBB-, and at risk of being downgraded to junk, I would not consider
it.)
Ignoring the fact that OKMUX is a load fund, it remains inferior to some
national muni bond funds. It has an expense ratio of 1.26% (the fund
manager has voluntarily waived expenses down to 1.07%, but that's voluntary
and can be terminated at any time). That's a huge cost for a muni fund.
Its yield is 3.89%.
Compare that with Vanguard Long-Term Tax-Exempt (VWLTX), expense ratio
0.15%, yield 4.72%. Or Vanguard Intermediate-Term Tax-Exempt (VWITX),
expense ratio 0.15%, yield 4.06%. The former matches OKMUX's stated goal
of 10-25 year average maturity, the latter comes close to matching OKMUX's
actual average maturity of 6 years. Even at OK's top income tax rate of
5.5%, VWITX would yield 3.84%, with less due to diversification across
states, across sectors (and more general obligation bonds).
You're not going to get back the extra 1% in expenses by avoiding OK taxes.
With yields around 4%, OK taxes take a bite of 0.22% at worst. Going with
a fund like OKMUX, you either wind up around 0.78% behind, or with a fund
that is taking greater risks to make up that difference. And the bottom
line is how much you net, not how much you pay in taxes to your state.
Mark Freeland
nNeEwTs@nyc.rr.com
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