It is a good idea to re-evaluate your investment strategies from time to time. Tax exempt investing can help you reduce the amount of taxes you have to pay in the future. Listed below are a couple of options you might consider adding to your portfolio.
Municipal bonds are debt obligations that are issued by states, cities, towns, or public commissions to provide money to things like schools, hospitals and other public work entities. Typically municipal bonds provide an income that is not taxed federally and in some cases is exempt from state and local taxes. Although any income generated by most municipal bonds is exempt from most taxes, the capital gains earned when the bonds are sold are subject to all federal and most state tax laws. There are a variety of municipal bonds with varying maturities that you can choose from. It is important to remember that when investing in bonds, as the interest rates rise, bond prices will fall.
U.S. Treasury Securities
The U.S. Treasury offers three different types of securities: Treasury bills, notes and bonds. These types of securities are used to refinance maturing debt or raise new funds to meet current obligations. Treasury bills are short term securities that will mature in one year or less from their issue date and are purchased for less than their face value. Treasury notes and bonds are securities that will pay a fixed rate of interest every six months until the maturity date is reached. Treasury notes mature in more than a year but no more than ten years from their issue date. Treasury bonds will mature in more than ten years from their issue date. Bonds and notes are usually purchased for a price that is close to their face value.
Agency bonds are debt securities that are offered by various government agencies, which are typically known as government sponsored enterprises. Agency bonds or agency securities are issued to fund either specific projects or ongoing operations such as mortgage lending, flood control or economic development. These types of investments will pay a higher interest rate than Treasury securities because they have a slightly greater risk. While treasuries and other government securities carry the full faith and credit guarantee of the U.S. government as to timely payment of principal and interest, government agency securities do not.