This week I’m talking about tax-free bonds. 

Today I’m covering the basics with tax-free bonds to help you understand what they are and how they’re different from other types of bonds. 

Tax free bonds are similar to other types of CDs or bond investments. You invest a certain amount of money, say $10,000 in a specific bond that matures in a set # of years. The main difference between tax free-bonds and other types of bonds is the interest that you earn is not subject to federal tax. 

And if you live in a state that has an income tax, like my home state of Oregon, you can also buy bonds in your state where the interest you earn on those bonds is exempt from state taxes as well. 

Another term for tax-free bonds that you might have heard before is municipal bonds or muni bonds for short. That’s because many tax-free bonds are issued by municipality - state, city, or county governments. Other than bonds issued directly from governments, tax-free bonds also include school and utility bonds like water, sewer, and electric bonds, as well as hospital bonds and even bonds for projects like zoos and parks. 

These government municipalities use the money raised from the bonds you buy to pay for projects, buildings, etc, so it’s often a cool way to invest in specific projects, especially if you buy local bonds. 

That’s it for today. Tomorrow I’m going to talk about the tax perks of buying tax-free munis, which is the primary reason why investors choose these types of bonds over the other options. 

Thanks for listening. My name is Ashley Micciche and this is the One Minute Retirement Tip. 

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