Tax-exempt bond funds are designed for the higher tax brackets. Things change from time to time, but in general....you need to be above the 24% bracket to get a benefit from using the tax-exempt funds.I am 65 and retired. I happened upon this thread when looking for nuggets of wisdom on my dilemma. I am on the border of the 22 to 24% tax bracket. The income tax in my state is about 2.75%. I need more bonds or bond funds for my desired asset allocation, but am maxed out in bonds/bond funds in my tax-advantaged accounts. (Total Bond Mkt Index Fund and Intermediate Term Bond Index Fund)
I was reading The Bogleheads Guide to the Three-Fund Portfolio, and the author states that if you don't have space for all of your bonds in your tax-advantaged accounts, consider a high quality tax exempt intermediate term bond fund, such as Vanguard's Tax Exempt Intermediate Term Bond Fund for your taxable account. The author did not mention tax brackets in making this recommendation.
Any thoughts on this?
Thank you!
You can certainly use the tax-exempt bond funds if you are in a lower bracket, but in the long run, you will make less money than holding a taxable bond fund and paying tax on the dividends.
A treasury fund would not be taxed by your state, but that only helps a little.
You could use I bonds which you can buy at Treasury Direct, but the amount you can purchase per year is limited.
Statistics: Posted by retiredjg — Fri Aug 16, 2024 8:27 pm — Replies 49 — Views 5919