Can Municipal Bonds be put into IRA's?
Do the rules allow municipal bonds, taxable and/or non-taxable, to be held in IRAs?
Yes, you may invest in bonds in your IRA. All bonds would be allowed although one of the features of municipal bonds in particular is their tax-free interest. So the yields on tax-free munis are generally lower to the equivalent rated or maturity taxable bond making munis not as attractive an investment for IRAs.
When buying a muni in your resident state you receive the federal as well as the state tax benefit. Other bonds that may be a better alternative would be taxable munis or corporate bonds.
Yes, you can. Generally, the yield on nontaxable municipal bonds are lower than comparable taxable bonds because of the tax advantages of the former. However, sometimes (As in the 2008-2009 period) yields on municipal bonds can be higher than comparable taxable bonds- in this case it makes sense to invest in nontaxable municipal bonds in an IRA.
You can, but why would you?
Municipal Bonds normally pay less interest payments than their corporate counterparts. For people that are in a high-tax bracket, municipal bonds can be a good idea because they might offer a better return net of taxes.
However, when you use a qualified account like an IRA, your gains, dividends and interest payments are deferred until you withdraw money from the account. The distributions are then taxed at your then current income tax rate. Therefore, it doesn't matter if your investment is tax-efficient in an IRA account. You are better off getting a bigger interest rate payment if the credit risk is similar.
I hope this helps.
You can tell from the previous answer that the short answer is yes, you can place muni bonds in your IRA. While others question whether it is indeed wise to do so, I will point out that if you are not planning to hold the bonds for an extended length of time there may still be a benefit to trading in your IRA. Certainly everyone has pointed out that the interest on the muni bonds is tax exempt, but capital appreciation on the bonds is not. So if you think the market has mispriced muni bonds in general, and feel there is an opportunity to capture a capital gain then you should not feel bad about buying and selling the muni bonds in your IRA account where the capital gains are tax deferred.
Yes, you could have municpal bonds in your IRA. Their federal tax- free income status is wasted when inside a tax-deferred IRA. When you withdraw the money from an IRA, your money, including the reinvested dividends will all be taxed as ordinary income. Municipal bonds generally py a lower interest rate when compared to similar quality non-municipal bonds, therefore it doesn't make any sense to hld them in your IRA.