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Stock Market Analysis and Personal Finance. Mr. Bernstein Tax Issues in Investing May 1, 2014. Stock Market Analysis & Personal Finance Mr. Bernstein. Municipal Bonds ( Munis ) Bonds issued by state or local government or agencies

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stock market analysis and personal finance

Stock Market Analysis and Personal Finance

Mr. Bernstein

Tax Issues in Investing

May 1, 2014

stock market analysis personal finance mr bernstein
Stock Market Analysis & Personal Finance Mr. Bernstein

Municipal Bonds (Munis)

Bonds issued by state or local government or agencies

Interest income is typically exempt from Federal tax

Reduces interest rate for state and local gov’t projects

Example:

An individual in 38% tax bracket is indifferent between earning 4% on a MCD bond and ~2.5% on Monmouth County Improvement Authority:

After-tax interest on 4.0% on MCD bond = .62 x 4.0% = 2.48%

stock market analysis personal finance mr bernstein1
Stock Market Analysis & Personal Finance Mr. Bernstein

Municipal Bonds (Munis)

Examples of Jersey municipal debt: http://www.nuveen.com/Home/Documents/Default.aspx?fileId=10976 , pp 44-53: listing of holdings of Nuveen NJ Municipal Bond Fund

Revenue bonds pledge income from specific activity (see “Revenue in bond description)

GO or General Obligations bonds are backed by full faith and credit of issuer

Many munis are insured by third parties (ie AMBAC, FGIC: credit enhancement)

Do munisever default? Yes, though not common:

http://www.kiplinger.com/article/investing/T052-C000-S002-the-5-biggest-muni-bond-defaults.html

stock market analysis personal finance mr bernstein2
Stock Market Analysis & Personal Finance Mr. Bernstein

The tax deferral advantage of pension savings

“DC” (defined contribution) plans:

401k

Employer-established, contributions made pre-tax

Employer may match contributions

Investment menu is provided, typically mutual funds

Withdrawals made after retirement are taxed as income

IRA

Individual contributions are tax deductions

Relatively few restrictions on investments

Withdrawals made after retirement are taxed as income

stock market analysis personal finance mr bernstein3
Stock Market Analysis & Personal Finance Mr. Bernstein

The tax advantage of dividends and capital gains

Since 2003, Federal tax rates on qualified dividends and capital gains have been capped at 15%, regardless of the income tax bracket of the individual*, which can be as high as 39.6% currently.

“It's fair to tax a company's profits, it's not fair to double-tax by taxing the shareholder on the same profits”. George W. Bush

* Fiscal Cliff legislation raised the cap to 23.8% for those earning over $400,000.