Rollover to municipal bonds
A bank suggested to one of my clients to roll an old pension plan,that is now eligible to be moved, into municipal bonds. If they are tax-free is the money still tax-free when they are taken out? It seems like I remember something about a blue-sky law regarding this?
Are these types of bonds suitable for IRA’s?
Permalink Submitted by Alan - IRA critic on Thu, 2014-12-18 22:36
While a muni can be placed in an IRA, it is generally not recommended since the interest simply becomes IRA earnings and would eventually be taxed at full ordinary income rates unless in a Roth IRA. Further, while there have been brief periods where muni yields were competitive with taxable bonds, mostly the yields are lower because the interest is tax free (except for AMT and indirect taxes on SS income from the interest). Therefore, I would suspect that this bank simply wants to unload these bonds to anyone they can, even if not appropriate. Of course, cashing the plan in and investing the proceeds in munis in a taxable account would be even worse. There are no exceptions allowing muni interest in an IRA to be considered additional IRA basis or to be distributed out tax free.