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

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%

Stock Market Analysis & Personal Finance Mr. Bernstein Municipal Bonds (Munis) Examples of Jersey municipal debt held by the Nuveen New Jersey Municipal Bond Fund: http://connect.rightprospectus.com/Nuveen/TADF/67065N753/AR?site=MF , on pp 46-56 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: http://www.kiplinger.com/article/investing/T052-C000-S002-the-5-biggest-muni-bond-defaults.html

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

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.