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 can buy a municipal bond or municipal bond fund in your IRA. I can only think of one reason to do so. If the investment environment offered a higher Yield to Maturity on municipal bonds as comparably-termed corporate or government bonds (same maturity, credit quality), your IRA would grow more over the same time period with the municipals. That would be a short-term anomaly, though, because tax-free bonds are issued with lower rates. They are tax-free to lower borrowing costs for cities and other government agencies – universities, school districts, sewer districts. Generally, they pay lower interest rates because the lender doesn’t pay income taxes on the interest. However, bond markets are robust and funny things can happen in the short-term. If an anomaly comes, it could make sense for a short while. Otherwise, there is nothing to gain from municipals 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.
The short answer is yes, you can place muni bonds in an IRA, however you may want to look into the tax implications of placing municipal bonds in your IRA. Non-taxable muni's may be not so much of a plus for the IRA if you are looking to hold to maturity. Taxable muni's might be better to consider vs. non-taxable muni's, however if you are just short-term trading for a price appreciation then an IRA might be a good way to delay short-term or long-term capital gain tax. I write about this a lot that the purpose for what you are trying to accomplish is often the determinant of the type of investment and what you do with it.
With bonds, you have the option to purchase either at discount to par, at par or at premium to par. This simply means that as you get to maturity the price, if bought at a discount will price appreciate to par value and the reverse if you bought at a premium. You can hold the bond to maturity and receive the par value plus all the interest received. Or as some traders do, they will look for indications of interest rates to move or situations that influence the price of the bond and attempt to trade the price as it fluctuates to market action.
There is a great article on tax on bonds here on Investopedia, http://www.investopedia.com/articles/tax/08/bond-tax.asp?optly_redirect=integrated&lgl=vtas-noas, I would look through this and it may help answer if you should include muni's in your IRA
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.