Municipal Funds in a Traditional IRA?

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
User avatar
Topic Author
aramv
Posts: 79
Joined: Wed Jun 29, 2016 12:10 pm

Municipal Funds in a Traditional IRA?

Post by aramv »

Is it wise to put a Municipal Fund in a Traditional IRA?

I was thinking of investing in Vanguard Intermediate-Term Tax-Exempt Fund (VWITX) in a Traditional IRA

But not sure...what the benefits would be.

I would appreciate any help

Thanks
Gill
Posts: 8221
Joined: Sun Mar 04, 2007 7:38 pm
Location: Florida

Re: Municipal Funds in a Traditional IRA?

Post by Gill »

There is no benefit. In fact, all income would come to you as taxable ordinary income.
Gill
Cost basis is redundant. One has a basis in an investment | One advises and gives advice | One should follow the principle of investing one's principal
jbolden1517
Posts: 868
Joined: Sun Jul 09, 2017 2:53 pm

Re: Municipal Funds in a Traditional IRA?

Post by jbolden1517 »

aramv wrote:Is it wise to put a Municipal Fund in a Traditional IRA?
I was thinking of investing in Vanguard Intermediate-Term Tax-Exempt Fund (VWITX) in a Traditional IRA
It is a terrible idea. You get less interest in exchange for a tax exemption you won't be using. The only reason to ever hold a municipal in an IRA is if it is fully defaulted, you bought low and you are waiting for settlement of partial principal. Vanguard won't touch those sorts of bonds. So a clear cut, no never on your question.
User avatar
neurosphere
Posts: 5205
Joined: Sun Jan 17, 2010 12:55 pm

Re: Municipal Funds in a Traditional IRA?

Post by neurosphere »

aramv wrote:I was thinking...
I'm curious how/why the thought of investing in municipal bonds in an IRA became something you were considering enough to ask a question about.
If you have to ask "Is a Target Date fund right for me?", the answer is "Yes" (even in taxable accounts).
User avatar
Topic Author
aramv
Posts: 79
Joined: Wed Jun 29, 2016 12:10 pm

Re: Municipal Funds in a Traditional IRA?

Post by aramv »

neurosphere wrote:
aramv wrote:I was thinking...
I'm curious how/why the thought of investing in municipal bonds in an IRA became something you were considering enough to ask a question about.
Hi, Its a long story, but I'm trying to figure out what to do with my dads pension when he turns 70 1/2 and gets a sum of 1.2 million dollars.

I got a few recommendations online on what do with a taxable portfolio, but this pension is going to be rolledover to a tradtional ira.

viewtopic.php?f=1&t=225383

Do you have any suggestions?
User avatar
ruralavalon
Posts: 26351
Joined: Sat Feb 02, 2008 9:29 am
Location: Illinois

Re: Municipal Funds in a Traditional IRA?

Post by ruralavalon »

aramv wrote:Is it wise to put a Municipal Fund in a Traditional IRA?

I was thinking of investing in Vanguard Intermediate-Term Tax-Exempt Fund (VWITX) in a Traditional IRA

But not sure...what the benefits would be.

I would appreciate any help

Thanks
A tax-exempt fund in a tax-advantaged account? This is like wearing a raincoat or using an umbrella indoors. Not useful.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
User avatar
Topic Author
aramv
Posts: 79
Joined: Wed Jun 29, 2016 12:10 pm

Re: Municipal Funds in a Traditional IRA?

Post by aramv »

ruralavalon wrote:
aramv wrote:Is it wise to put a Municipal Fund in a Traditional IRA?

I was thinking of investing in Vanguard Intermediate-Term Tax-Exempt Fund (VWITX) in a Traditional IRA

But not sure...what the benefits would be.

I would appreciate any help

Thanks
A tax-exempt fund in a tax-advantaged account? This is like wearing a raincoat or using an umbrella indoors. Not useful.
Thank you for that description. Very helpful :D
Gill
Posts: 8221
Joined: Sun Mar 04, 2007 7:38 pm
Location: Florida

Re: Municipal Funds in a Traditional IRA?

Post by Gill »

You want taxable bonds in the IRA, not tax exempt.
Gill
Cost basis is redundant. One has a basis in an investment | One advises and gives advice | One should follow the principle of investing one's principal
Kennyt7
Posts: 70
Joined: Mon Jan 19, 2015 6:28 pm

Re: Municipal Funds in a Traditional IRA?

Post by Kennyt7 »

I actually own a few individual muni bonds in my ira paying around 4%
TropikThunder
Posts: 3918
Joined: Sun Apr 03, 2016 5:41 pm

Re: Municipal Funds in a Traditional IRA?

Post by TropikThunder »

ruralavalon wrote: A tax-exempt fund in a tax-advantaged account? This is like wearing a raincoat or using an umbrella indoors. Not useful.
It's worse then that, actually, it's harmful. Holding these in a tax-advantaged account creates a future tax liability where there was none before since all withdrawals from traditional IRA are taxed as regular income.
Kennyt7 wrote:I actually own a few individual muni bonds in my ira paying around 4%
You'll owe tax on the entire value of the bond (purchase price, coupon payments and capital gains) when you make withdrawals. The coupon payments would be tax-exempt in a taxable account.
User avatar
gasman
Posts: 913
Joined: Mon Jul 30, 2007 6:13 pm

Re: Municipal Funds in a Traditional IRA?

Post by gasman »

I think that there is a very rare (maybe once a generation case) to be made for buying muni bonds in a tax advantaged account: If you are willing to market time and and believe that municipal bonds are cheap relative to taxable bonds. In the last decade, (POST MEREDITH WHITNEY) the muni/treasury ratio has been greater than 100%. Given the historical default rate of muni bonds, this should never happen. There were pundits at the time who were screaming that an arbitrage bet on munis was a good call. They were right. Again this is a market timing type situation.
jbolden1517
Posts: 868
Joined: Sun Jul 09, 2017 2:53 pm

Re: Municipal Funds in a Traditional IRA?

Post by jbolden1517 »

aramv wrote: Do you have any suggestions?
I like your list of funds. Nice and diversified. You don't need 20 funds which are kinda close. From your list I'd add international stock and then just split 50/50.
50% Vanguard Wellington Fund (VWENX) (60/40)
30% international stock (Vanguard International Value)
20% Vanguard Emerging Markets Government Bond (VGAVX)

I'd recommend something like Schwab Intelligent Portfolio for of Betterment. Those 30 basis points will be well spent. But if not that's what I'd do.
Gill
Posts: 8221
Joined: Sun Mar 04, 2007 7:38 pm
Location: Florida

Re: Municipal Funds in a Traditional IRA?

Post by Gill »

Is your father going to be comfortable with the risk of substantial loss in the equity portion of his IRA? Has he sought out your advice for investing this money?
Gill
Cost basis is redundant. One has a basis in an investment | One advises and gives advice | One should follow the principle of investing one's principal
User avatar
Topic Author
aramv
Posts: 79
Joined: Wed Jun 29, 2016 12:10 pm

Re: Municipal Funds in a Traditional IRA?

Post by aramv »

Gill wrote:Is your father going to be comfortable with the risk of substantial loss in the equity portion of his IRA? Has he sought out your advice for investing this money?
Gill
Gill,
My father has trusted me to manage the 1.2 million dollar pension that will be given to him when he turns 70 1/2 in 2021. So I have until then to come up with a plan. I'm 1 of 4 siblings and trying to find a way for this money to help us while my father is alive. I apprecaite any and all help.
User avatar
Topic Author
aramv
Posts: 79
Joined: Wed Jun 29, 2016 12:10 pm

Re: Municipal Funds in a Traditional IRA?

Post by aramv »

jbolden1517 wrote:
aramv wrote: Do you have any suggestions?
I like your list of funds. Nice and diversified. You don't need 20 funds which are kinda close. From your list I'd add international stock and then just split 50/50.
50% Vanguard Wellington Fund (VWENX) (60/40)
30% international stock (Vanguard International Value)
20% Vanguard Emerging Markets Government Bond (VGAVX)

I'd recommend something like Schwab Intelligent Portfolio for of Betterment. Those 30 basis points will be well spent. But if not that's what I'd do.
Thank you jbolden. So you'd put it in Schwab IP or Betterment?
User avatar
Topic Author
aramv
Posts: 79
Joined: Wed Jun 29, 2016 12:10 pm

Re: Municipal Funds in a Traditional IRA?

Post by aramv »

Gill wrote:Is your father going to be comfortable with the risk of substantial loss in the equity portion of his IRA? Has he sought out your advice for investing this money?
Gill
My father doesn't need this $. This is our inheritance.
He is fine with a little terbulance . How would you invest it? :)
jbolden1517
Posts: 868
Joined: Sun Jul 09, 2017 2:53 pm

Re: Municipal Funds in a Traditional IRA?

Post by jbolden1517 »

aramv wrote:
jbolden1517 wrote:
aramv wrote: Do you have any suggestions?
I like your list of funds. Nice and diversified. You don't need 20 funds which are kinda close. From your list I'd add international stock and then just split 50/50.
50% Vanguard Wellington Fund (VWENX) (60/40)
30% international stock (Vanguard International Value)
20% Vanguard Emerging Markets Government Bond (VGAVX)

I'd recommend something like Schwab Intelligent Portfolio for of Betterment. Those 30 basis points will be well spent. But if not that's what I'd do.
Thank you jbolden. So you'd put it in Schwab IP or Betterment?
Yes. My recommendation is Schwab. You have siblings here. Schwab will put you in a very good portfolio supporting a high draw that will grow. They have a lot of services you can buy. SIP is free so no one will get upset about money going sideways. And the specific allocation is Schwab's which will avoid a lot of lifetime resentment. Whatever you pick will not in retrospect been the best choices you could have made. Let Schwab be the one that picks. Don't go crazy with the bonds though. The Schwab portfolios sustain a draw pretty well. Schwab can also handle some of the problems regarding taxes on the basics.

If you want support beyond investing, like on the taxes and transfers and... these guys will put you in an even better portfolio though they are not free or even inexpensive: http://buckinghamadvisor.com/ .
User avatar
Topic Author
aramv
Posts: 79
Joined: Wed Jun 29, 2016 12:10 pm

Re: Municipal Funds in a Traditional IRA?

Post by aramv »

jbolden1517 wrote:
aramv wrote:
jbolden1517 wrote:
aramv wrote: Do you have any suggestions?
I like your list of funds. Nice and diversified. You don't need 20 funds which are kinda close. From your list I'd add international stock and then just split 50/50.
50% Vanguard Wellington Fund (VWENX) (60/40)
30% international stock (Vanguard International Value)
20% Vanguard Emerging Markets Government Bond (VGAVX)

I'd recommend something like Schwab Intelligent Portfolio for of Betterment. Those 30 basis points will be well spent. But if not that's what I'd do.
Thank you jbolden. So you'd put it in Schwab IP or Betterment?
Yes. My recommendation is Schwab. You have siblings here. Schwab will put you in a very good portfolio supporting a high draw that will grow. They have a lot of services you can buy. SIP is free so no one will get upset about money going sideways. And the specific allocation is Schwab's which will avoid a lot of lifetime resentment. Whatever you pick will not in retrospect been the best choices you could have made. Let Schwab be the one that picks. Don't go crazy with the bonds though. The Schwab portfolios sustain a draw pretty well. Schwab can also handle some of the problems regarding taxes on the basics.

If you want support beyond investing, like on the taxes and transfers and... these guys will put you in an even better portfolio though they are not free or even inexpensive: http://buckinghamadvisor.com/ .
Thank you jbolden,
I just got off the phone with Schwab Costumer Service. They were extremely helpful.
I told them my whole situation; they understood me, informed me of all the tax rules and gave me great advice on allocation.
The RMD can be automatically deducted and put into a separate brokerage account that can be linked to 4 bank accounts and distribute the RMD to my siblings bank accounts directly. I'm sure Vanguard has a RMD program as well, but I do love the auto robo portfolio that Schwab provides. I'm going to continue doing research, but Schwab Intelligent Portfolio is definetly on my top choices.

You mentioned Betterment. I have a tax Betterment account . Do they also deal with Traditional IRA's and RMD like Schwab? Do you recommend one over the other?

Thank you for your help

A
jbolden1517
Posts: 868
Joined: Sun Jul 09, 2017 2:53 pm

Re: Municipal Funds in a Traditional IRA?

Post by jbolden1517 »

aramv wrote:Thank you jbolden,
I just got off the phone with Schwab Costumer Service. They were extremely helpful.
I told them my whole situation; they understood me, informed me of all the tax rules and gave me great advice on allocation.
The RMD can be automatically deducted and put into a separate brokerage account that can be linked to 4 bank accounts and distribute the RMD to my siblings bank accounts directly. I'm sure Vanguard has a RMD program as well, but I do love the auto robo portfolio that Schwab provides. I'm going to continue doing research, but Schwab Intelligent Portfolio is definetly on my top choices.
Vanguard doesn't own a bank. Of course they can work with a bank. But again if something goes wrong between the account and the 4 bank accounts it is Schwab that gets the phone call not you. It is their robo-advisor, their brokerage account for your siblings if they get one, their bank, their line of credit... You picked Schwab but that's it. All the questions about why XYZ electric company didn't get their $53 payment from the account when it was working last month goes to Schwab. Schwab has all sorts of documents about their asset allocation theory.
aramv wrote: You mentioned Betterment. I have a tax Betterment account . Do they also deal with Traditional IRA's and RMD like Schwab? Do you recommend one over the other?
Yes Betterment has IRAs. They also do trusts. They have an inexpensive advisor arm as well. I think they have slightly worse services and slightly worse asset allocation. But it is slightly worse. They wouldn't be a terrible choice if you like them more or are more comfortable with them. Again they don't own a bank.

As far as reviews of the alternatives I'm doing a review thread now: viewtopic.php?f=10&t=223465&newpost=3487055

My overall recommendation is Schwab. Especially for you because no question you need the extras like banking. I can see reasons for going up in cost / service level to someone like Buckingham but I definitely don't think you should drop the service level below Schwab's.
aramv wrote: Thank you for your help
You are welcome.
User avatar
Topic Author
aramv
Posts: 79
Joined: Wed Jun 29, 2016 12:10 pm

Re: Municipal Funds in a Traditional IRA?

Post by aramv »

jbolden1517 wrote: Thu Aug 10, 2017 11:41 am
aramv wrote:Thank you jbolden,
I just got off the phone with Schwab Costumer Service. They were extremely helpful.
I told them my whole situation; they understood me, informed me of all the tax rules and gave me great advice on allocation.
The RMD can be automatically deducted and put into a separate brokerage account that can be linked to 4 bank accounts and distribute the RMD to my siblings bank accounts directly. I'm sure Vanguard has a RMD program as well, but I do love the auto robo portfolio that Schwab provides. I'm going to continue doing research, but Schwab Intelligent Portfolio is definetly on my top choices.
Vanguard doesn't own a bank. Of course they can work with a bank. But again if something goes wrong between the account and the 4 bank accounts it is Schwab that gets the phone call not you. It is their robo-advisor, their brokerage account for your siblings if they get one, their bank, their line of credit... You picked Schwab but that's it. All the questions about why XYZ electric company didn't get their $53 payment from the account when it was working last month goes to Schwab. Schwab has all sorts of documents about their asset allocation theory.
aramv wrote: You mentioned Betterment. I have a tax Betterment account . Do they also deal with Traditional IRA's and RMD like Schwab? Do you recommend one over the other?
Yes Betterment has IRAs. They also do trusts. They have an inexpensive advisor arm as well. I think they have slightly worse services and slightly worse asset allocation. But it is slightly worse. They wouldn't be a terrible choice if you like them more or are more comfortable with them. Again they don't own a bank.

As far as reviews of the alternatives I'm doing a review thread now: viewtopic.php?f=10&t=223465&newpost=3487055

My overall recommendation is Schwab. Especially for you because no question you need the extras like banking. I can see reasons for going up in cost / service level to someone like Buckingham but I definitely don't think you should drop the service level below Schwab's.
aramv wrote: Thank you for your help
You are welcome.
jbolden1517,
What do you think about putting the funds in Fixed Index Annuities? I no nothing about them. I just heard about this a couple of days ago.
mhalley
Posts: 10432
Joined: Tue Nov 20, 2007 5:02 am

Re: Municipal Funds in a Traditional IRA?

Post by mhalley »

A portion could go into an spia but fixed index annuities are generally a bad idea. High fees out the wazoo.
You could get a quote on an spia here.
https://www.immediateannuities.com/

https://www.cbsnews.com/news/six-questi ... d-annuity/
User avatar
retiredjg
Posts: 54082
Joined: Thu Jan 10, 2008 11:56 am

Re: Municipal Funds in a Traditional IRA?

Post by retiredjg »

We don't really know enough to give you a reliable answer. For example, are the heirs 12 years old or 52 years old?

A simple portfolio at 60% stocks and 40% bonds can satisfy a lot of needs. This could be done with individual funds or at Vanguard with 1 LifeStrategy Moderate Growth fund.


Whoever suggested fixed indexed annuities is more interested in making money than helping you decide on a good investment.
The Wizard
Posts: 13356
Joined: Tue Mar 23, 2010 1:45 pm
Location: Reading, MA

Re: Municipal Funds in a Traditional IRA?

Post by The Wizard »

aramv wrote: Wed Aug 16, 2017 6:28 pm
jbolden1517,
What do you think about putting the funds in Fixed Index Annuities? I no nothing about them. I just heard about this a couple of days ago.
Allow me to answer.
You want to AVOID all such insurance products like the plague!
Attempted new signature...
User avatar
ruralavalon
Posts: 26351
Joined: Sat Feb 02, 2008 9:29 am
Location: Illinois

Re: Municipal Funds in a Traditional IRA?

Post by ruralavalon »

The Wizard wrote: Wed Aug 16, 2017 7:47 pm
aramv wrote: Wed Aug 16, 2017 6:28 pm
jbolden1517,
What do you think about putting the funds in Fixed Index Annuities? I no nothing about them. I just heard about this a couple of days ago.
Allow me to answer.
You want to AVOID all such insurance products like the plague!
Fixed index annuities are a HORRIBLE idea. Don't buy one.

viewtopic.php?t=164205
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
jbolden1517
Posts: 868
Joined: Sun Jul 09, 2017 2:53 pm

Re: Municipal Funds in a Traditional IRA?

Post by jbolden1517 »

ruralavalon wrote: Thu Aug 17, 2017 9:44 am
The Wizard wrote: Wed Aug 16, 2017 7:47 pm
aramv wrote: Wed Aug 16, 2017 6:28 pm
jbolden1517,
What do you think about putting the funds in Fixed Index Annuities? I no nothing about them. I just heard about this a couple of days ago.
Allow me to answer.
You want to AVOID all such insurance products like the plague!
Fixed index annuities are a HORRIBLE idea. Don't buy one.

viewtopic.php?t=164205
They answered on my behalf accurately. I concur. I think that's a very bad product. But if you wanted to hold that bad product (a call on the SP500) there is no reason to hire an insurance company to buy the calls for you. You can do it yourself for about 5 basis points which is about 120-200 less than what the insurance company will charge you to buy them for you.
Post Reply