As a result of my $15,000 tax debacle I had this year for the 2023 tax year, I decided I needed to do something drastic and sensible so I’m buying $30,000 in municipal bonds to generate tax free income.
I already bought $10,000 of ETF NEA which is a municipal bond ETF that is currently generating 4.5 percent dividend paid out monthly. The only down side is the high expense ratio of 1.6% but the tax benefit is worth it to me for now. This is in my taxable brokerage account so the benefit here is any dividends that are paid out are tax free. It does slightly deviate from my core plan I wrote about here but heavy taxation is making me do it.
I plan on adding another $5000 to $10000 to this fund after the next Fed meeting and I am hoping it dips a bit to buy more but I’m not in a rush right now. I keep $13,000 cash reserve for my rental property portfolio and it’s been earning a nice 5.4% in T-bills but that interest is NOT tax free, it’s taxable and the interest from this and other investments pushes me into the 32% tax bracket so I need to lower my taxable income in as many ways as possible.
I also put a $5000 order in for a new 24 year municipal bond in Texas that will pay 4.45 percent (5.933% tax equivalent) and the interest will be tax free for the next 24 years. I was sure to run it through my municipal bond gauntlet and while anything can happen, I feel comfortable buying this bond for now.
I am looking at other bond ETFs too but still conducting research so not sure what will make up the remainder of my purchases. All I know for certain is that taxes are the biggest issue I have right now.
I have also taken some other steps including signing up to defer my income through my employer but I will write a separate post about that later.
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What are your favorite tax free investments? Let me know in the comments below….