Very. good explanation. Thank you and I will look into this. It was offered to me by Vanguard at the beginning of the year but I just laughed it off like why would I want bonds in my portfolio. Rookie stuffTax exempt municipal income is federally tax exempt and is also not counted towards the NIIT tax. An added benefit is if your state has an income tax and the municipal income is from that home state, it is tax exempt from state tax. This lowers the AGI and does not count towards ordinary income thus helping to preserve the lower band rate obtained for QD/LTCGs.I did hit that NIIT tax this year as well.I have had a taxable account since 1996 and still maintain it in retirement. For 2023, It disbursed $17,288 in QD/LTCGs and $4,900 on non-qualified income. I also took a $17K distribution on my 401k as well. My QD/LTCG tax rate was zero. Why? I also had an additional $29K in municipal income. That kept my 15% tax rate at zero.
It all depends on how you do it. Only once did I hit the extra NIIT tax in 2020 as that was the year I received severance. I did not have any problem paying the 15% in my last few working years on those QD/LTCGs as I knew what the end result would look like.
Can you please expand on what you mean about holding municipal income? What exactly does that do.
The drawback is the yields are lower on municipal income due to the more favorable tax treatment. This is where one needs to do math to see if the benefits outweigh the drawback.
Statistics: Posted by learning30 — Sun Feb 25, 2024 7:11 pm