This Tax “Loophole” Boosts Your Dividends to 9.5%

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Still feeling the taxman’s sting from April? Then you probably need to consider getting some tax-free income.

Having an income stream the IRS can’t touch may sound like pie in the sky, but it’s a reality if you hold municipal bonds. That’s because the tax code provides an exclusion for these bonds, allowing most US investors to collect interest payments from them tax-free. And in many states, income from those bonds is exempt from state taxes, as well.

If you aren’t intrigued yet, then let me show you some numbers—and what they could mean to your portfolio.

If you’re in the highest tax bracket (37%) and you get a 6%-yielding municipal-bond fund, that income is the exact same as a 9.5% dividend from stocks.…
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Municipal bonds are off to a slow start in 2018 – which is usually a bullish sign for these tax-free payers.

We last “pounded the table” on munis in December 2016. They were coming off their worst month since the Great Recession, and we discussed their tendency to rally when they are hated:

“It’s impossible to call a top in yields (or bottom in munis) without the benefit of hindsight. But we contrarians make our money buying when nobody else wants to – and the last time munis were this hated, they returned 30-38% over the next 12 months.”

Turns out that was the bottom in munis.…
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About Author

Brett

Hi, I’m Brett Owens – and I’m a financial junkie. My “problem” started incollege, when I got a little dose of the stock market – man, was I hooked…in no time, I was reading the Wall Street Journal religously.

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