1. Stock Market Analysis and Personal Finance
Mr. Bernstein
Tax Issues in Investing
November 2017

2. 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%

3. Stock Market Analysis & Personal Finance Mr. Bernstein
Municipal Bonds (Munis)
Examples of Jersey municipal debt held by the Nuveen New Jersey Municipal Bond Fund:
, on pp are a listing of holdings of the Fund as of 2/2017
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 munis ever default? Yes, though not common:

4. 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

5. 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
* Later legislation raised the cap to 23.8% for those earning over $400,000.