Imagine the income that you earned on your investments were yours…without having to pay income taxes. That's what municipal bonds can offer!

What is a Municipal Bond?
A municipal bond is a debt obligation issued by states, cities, counties, and other government agencies. These bonds are issued for the sole purpose of funding public projects like building schools and highways. When you purchase the bond, you're essentially lending money to the issuer (the city or county etc.) at a specified rate of interest. Municipal bonds issued in New York State are exempt from Federal and New York State taxes (with few exemptions).

The Tax-Exempt Advantage
While it's true that municipal bonds generally offer lower coupon interest payments than taxable bonds, the best way to appreciate the tax-exempt advantage is to compare it to an investment in taxable bonds.

For example, let's assume that you're married (filing jointly) and your combined income is $160,000 which puts you in the 41% effective tax bracket.

If you had $50,000 to invest and you had to choose between a taxable bond with a yield of 9% or a tax-free bond with only a 6.5% yield, which would you choose?

It may seem obvious, but take a closer look. If you'd chosen the 6.5% tax-free Municipal bond, you'd get $3,250 per year in interest (a 6.5% yield) and pay no federal or state taxes. The taxable investment, however, would provide only $2,655 in interest income (only a 5.3% yield) after taxes have been deducted!

As you can see, the municipal bond would provide the best yield after taxes are taken into account. Here at Sage Rutty, we have a wide range of Municipal Bond offerings available. Please feel free to contact me by phone at (585) 512-2313 or e-mail me at KDowejko@SageRutty.com to set up an initial consultation, free of charge. With the help of Sage Rutty's Fixed Income department, we can help you build and maintain income portfolios for tax-free and taxable accounts.