muni investment question

[KTP]

I want to diversify our investments into about 40% tax exempt municipal bonds...something like the Vangard long term muni fund.

We currently gross about 200k a year and I am concerned if the interest earned in the muni bond fund will still be subject to some sort of tax (AMT?) or if it will ineed be tax free.

Anyone have an idea?

[LuxLiving]

Call Vanguard & ask, but I'm thinking NO.

[KTP]

Thanks.

I haven't called them yet, but I did find this on their website:

"Vanguard funds have flexibility to invest in private-activity bonds
Most Vanguard tax-exempt bond funds seek to limit their investments in private-activity bonds. Although the funds' income distributions are expected to be exempt from federal income tax, a portion of these distributions may be subject to AMT. By prospectus, Vanguard municipal bond funds may invest up to 20% of their assets in private-activity bonds."

LAME!!!

Why can't they provide a muni fund that doesn't invest in this private activity bonds??? I really don't want to pay tax on my lower-than-corporate interest rate muni bonds.

[KTP]

Ok, spoke with Vangard. It is amazing how nice they treat you when you hint you might be investing over $100,000 with them. I felt like the guy wanted to come over and wash my car or something.

It turns out that currently the AMT exposure of the intermediate term muni fund (VWITX) I am considering is 0.00%. In other words, they have not invested in any private project municipal bonds (baseball parks, etc).

So my concerns were a bit unfounded I guess. Now I just need to send them a check

[LuxLiving]

Or just read the prospectus first - most you can do online these days, THEN send the check if it meets your guideposts.

[KTP]

I did read it...it really didn't spell out clearly anything I didn't already know about the AMT consequences.

Anyway, I am pretty confident now that Vanguard really wants to minimize their investor exposure to AMT in this fund.

[StockTrader6080]

Run a cooltrade robotic trader for one month with your ira account, and you will abandon mutual funds forever! Just turn it on in simulator mode and see what you think.

[Marc Prosser]

AMT Municipal Bond Funds

There are a number of national AMT-Free tax-exempt municipal bond funds. Basically, the fund just needs to avoid buying private activity / conduit bonds. Only about 20% of munis fall into this category.

However, there is talk by President Obama about limiting the amount of tax-free interest that one could receive so that you could not lower your total tax rate below 28% by buying municipal bonds.