Harvesting Gains from Municipal Bonds Tax‑Free

Municipal bonds, often called “munis,” provide a powerful way for investors to earn income that’s typically exempt from federal taxes—and sometimes from state taxes as well. For high-net-worth individuals, knowing how to strategically invest in and manage muni bonds can unlock reliable, tax-advantaged gains. Ron McCoy helps his clients use municipal bonds as a core tool for growing wealth and keeping more of what they earn.

What Makes Municipal Bonds Attractive?

Municipal bonds are issued by state and local governments to fund public projects like schools, highways, and hospitals. The biggest advantage for investors? Most muni bond interest is exempt from federal income tax, and in many cases, it’s also free from state and local taxes if you live in the issuing state.

• Tax-free income: Interest payments are generally not taxed at the federal level.
• Potential state tax benefits: Residents may avoid state and local taxes on bonds issued in their home state.
• Lower risk: Munis are often considered less risky than corporate bonds, especially those with strong credit ratings.

For those in higher tax brackets, the tax savings can make municipal bonds a better after-tax choice than many taxable bonds, even if the stated interest rate is a bit lower.

Harvesting Tax-Free Gains with Muni Bonds

It’s not just the tax-free income that makes municipal bonds valuable. With the right approach, you can also take advantage of price appreciation—selling bonds at a profit when market conditions are favorable. Here’s how Ron McCoy approaches tax-efficient muni bond investing:

1. Strategic Buying and Selling

Buy muni bonds when yields are higher or when credit conditions look solid. Hold them for steady, tax-free interest, but stay ready to sell if the bond’s market price rises significantly or if your needs change.

2. Taking Advantage of Tax-Loss Harvesting

If you have to sell a muni bond at a loss, you can use that loss to offset other capital gains in your portfolio, reducing your overall tax bill. This strategy works especially well when rebalancing your investments.

3. Using Muni Bond Funds and ETFs

Instead of buying individual bonds, many investors choose muni bond mutual funds or ETFs. These funds offer diversification, professional management, and easy liquidity, while still providing tax-free interest.

Real-Life Example: Muni Bond Strategy in Action

Ron worked with a client in a high tax bracket who wanted to reduce taxes and preserve capital. By shifting part of their portfolio into high-quality municipal bonds, the client received steady, tax-free income and, during a period of falling interest rates, was able to sell some bonds at a premium for additional tax-free gains. The result: higher after-tax returns and less risk compared to taxable bonds.

Tips for Maximizing Muni Bond Benefits

• Know your tax bracket: The higher your federal and state tax rates, the more valuable tax-free income becomes.
• Focus on credit quality: Choose bonds with strong credit ratings to minimize default risk.
• Review your holdings regularly: Stay on top of market conditions and your own income needs.

Ron McCoy’s Approach

Ron believes municipal bonds should play a key role in the portfolios of affluent investors. His approach centers on choosing the right bonds, understanding current market trends, and actively managing holdings to capture tax-free gains when possible. By making tax efficiency a top priority, Ron helps clients build reliable income streams while keeping more of what they earn.