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True Talk Finance



Even though tax filing season is behind us for another year it is always recommended to do forward tax planning for the coming year. I have discussed this before. In my experience, too many wage earners think that having a tax accountant is the best and only way to save on taxes. But tax accountants and CPA’s are basically historians.  They take everything you did in the previous year and save as much money as they can when compiling your tax returns. It is critical to have a professional who can assist you with planning for the coming year so that come tax filing time, you have a lot more to give to your accountant for tax preparation and savings.


We have covered the tax deferral that goes with most IRA’s. But what about investing that gives you tax-free earnings?  Of course there is the Roth IRA.  But not everyone qualifies for a Roth and they are meant for accumulating assets.  But what if you are in a high tax bracket and need a reliable income stream?  The answer is municipal bonds.  There are so few truly tax advantaged investments that the popularity of municipal bonds has really taken off in recent years.


The ultimate goal of municipal bonds is to encourage investment in your local community.  Therefore to entice you to invest, the federal government has made the interest on municipal bonds federally tax free. In addition, if you invest in the area in which you reside the interest may also be double tax free.  In other words, both federal and state tax free.  On the other hand, a little known fact about government bonds is that they are state tax free.  The concept is more commonly known as the Doctrine of Reciprocal Immunity.  This is a supreme court ruling handed down decades ago that means the federal government will not tax the interest on municipal debt and the municipalities will not tax the interest on federal debt.


Now there are naysayers that will tell you that the government will find a way to tax everything eventually, including municipal bonds.  In my opinion, this is unlikely as the municipalities can turn around and tax the interest on government bonds.  Now there are investors who are searching for the best interest yields who go outside of their community such as another state. This is perfectly legal except that they will no longer get the potential state tax exemption, only the federal.


What about risk? As I have said in previous articles, there is no such thing as a totally risk free investment.  However, there has not been a default on municipal bonds since the great depression, (about 80 years ago), and you can also get municipal bonds that are insured against default.  Not FDIC insurance, of course, but there are companies who specialize in municipal bond insurance.


Are municipal bonds right for everyone? No. If you are in a high income tax bracket and have maxed out your retirement contributions and are still paying exorbitant taxes, then municipal bonds might fill an important niche in your portfolio.  However, if you are in a low tax bracket it might make better sense to invest in a taxable bond and pay the taxes as your after tax yield might still be better than what the municipal bonds are paying.


Yet, in my experience I have run across a number of investors who HATE paying taxes-period, and will take a lower tax free return just so they don’t have to send in even one extra dime to the IRS.  While this is legal, it does not make sense financially.  As such, I would not recommend it.


Lastly, the investor who is considering tax free bonds has a wide range of options to choose from.  You can buy the bonds outright or hold them through a mutual fund for professional management and greater diversification and a monthly income stream.  In addition you can hold them through UIT’s, (unit investment trusts) or ETF’s, (exchange traded funds), for greater trading flexibility.


As always, I can assist interested investors with any or all of these options as Raymond James is one of the largest traders of fixed income products in the industry and can offer a wide selection of alternatives that can be structured to fit your individual needs.


With a free comprehensive financial analysis I can determine what would make the most sense for your specific situation and with our bond strategists we can custom tailor a tax free strategy specific to your needs and objectives.

I can be reached at 480-296-9556.

Rudy Eidenbock, Financial Advisor, RJFS

Office: 480-307-9909

Cell: 480-296-9556

Fax: 480-907-1413

4111 E. Valley Auto Dr. #104

Mesa Arizona 85206



Purity Wealth Advisors is not a registered broker dealer and is independent of Raymond James Financial Services Inc. Securities offered through Raymond James Financial Services, Inc.  Member FINRA/SIPC. Investment advisory services offered through Raymond James Financial Services Advisors Inc.  Member All investing involves risk and you may incur a profit or a loss. There is no assurance that any investment strategy will be successful.  Income from municipal bonds is not subject to federal income taxation; however, it may be subject to state and local taxes and for certain investors, to the alternative minimum tax.  Please consult an income tax professional to assess the impact of holding such securities on your tax liability. 


The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Any opinions are those of Rudy Eidenbock and not necessarily those of Raymond James.  Every investors situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment.