You’re probably well aware that interest from municipal bonds is generally not subject to income tax or the 3.8% Medicare surtax. So don’t make the mistake of turning tax-free income into taxable income by holding municipal bonds in the wrong kind of account. Municipal bond income in a retirement account will be taxed as ordinary income when you eventually take distributions from the account. Keep bonds in your non-retirement accounts to maintain the nontaxable treatment of the income they generate.
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Written by: Doug Rodrigues