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Tax Exempt  Reply with quote  

I have recently purchased a Vangard's tax-exempt bond fund, VWITX. The fund has some holdings of California's munis. Does it mean it's both federal and California's tax-exempt?
Post Mon Jul 11, 2011 8:03 pm
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It might be best if you contact the IRS for questions like this. They would be better at assisting you.
Post Sat Jul 16, 2011 5:23 pm
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Municipal bonds are exempt from Federal income tax. They are usually taxable at the state level, but state tax laws vary and members on a forum like these can't speak to individual state laws. At the end of the year your fund will send you a 1099-DIV accompanied by a break-down of exactly what percentage of its income is exempt and what percentage is taxable both Federal and state.
Post Sat Jul 16, 2011 6:23 pm
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Because of the special tax-exempt status of most municipal bonds, investors usually accept lower interest payments than on other types of borrowing . This makes the issuance of bonds an attractive source of financing to many municipal entities, as the borrowing rate available in the open market is frequently lower than what is available through other borrowing channels.
Post Fri Jul 29, 2011 9:23 am
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Not part of your question - but VWITX has 2.73% yield and a 5.7 year duration. If US interest rates go up in the future, you will be exposed to a loss of principal. VG has some 2.5 and 3 yr duration bond funds that have less exposure. Just sayin'.

And whether or not a tax-free bond makes sense depends on your tax bracket. For some of us, it is better to buy the corresponding 4% taxable bond (same grade) and pay the tax.
Post Fri Jul 29, 2011 4:29 pm
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