Most people who save for their retirement with annuities, pension plans or 401(k)s, usually choose to throw their lot in with basic and sensible investments – tax-advantaged long-term accounts. These accounts can be a sensible choice because they allow for great tax benefits. As wonderful as they can be for your retirement planning, there can be one little potential chink in the armor – if you’re someone who has trouble sticking to a plan, you might take advantage of how they allow you to make withdrawals even before you retire. What do you do if you want a great investment opportunity for your retirement, that’s also safe from your own prying hands? This where you learn about what are municipal bonds.
A municipal bond is a great way to get tax benefits on your retirement investments, and actually get some kind of access to your money when you really need it. They’re great also because they offer you compound interest, and give you a great deal of liquidity.
So let’s start at the basics. What are municipal bonds?
As you might guess by the name, municipal bonds are issued by the government to help pay for all kinds of things – better schools, better hospitals or better infrastructure. You don’t have to buy into them long-term, either (you can if you want to though). You can buy them for just a few months or for decades at a time.
Those studying up about what are municipal bonds, typically come away from bonds pay very little. Anyone who worries about this should seek reinsurance and how there are all kinds of benefits to going with these as well. The biggest benefit of course is freedom from taxes.
If you are a high tax bracket individual or if you’re just someone is trying to put a tax-free retirement income for when you retire, municipal bonds can be a great idea. For the richest among us, the liquiddity and tax benefits together can be such a great reason to go with them.
It isn’t just federal taxes that you get exemption from. They can’t touch you with state or local taxes, either. Put this together with how municipal bonds are typically not volatile the way stocks are, and they can be a great place to park your money when the markets seem to not be able to make their minds up.
The other side of the story of course is that you don’t make much money going with municipal bonds. But it’s a downside that you accept. If you’re satisfied with the overall balance you get, there are typically two ways that you can go with municipal bonds. You can either choose to buy directly, or you can choose a municipal bond fund.
