How to Purchase Municipal Bonds

Investing in municipal bonds can be attractive. Earned interest is not taxed federally (though it can make you subject to the Alternative Minimum Tax). Under certain conditions, it is not taxed by state or local governments either. Munis are a relatively safe and liquid investment.

Difficulty: Moderately challenging

Instructions

Things You'll Need:

• Internet Access
• Computers
• Wall Street Journal
• Financial Calculator
• Brokerage Accounts

1. Decide whether you want to buy a new issue or an issue that is already outstanding. Many securities dealers sell both types.

2. Research the bond issue. Web sites such as www.bondmarket.com and www.investinginbonds.com offer information on prices and yields.

3. Call a dealer or banker who is registered with the Municipal Securities Rule-Making Board. There are 2,700 registered municipal bond dealers nationwide.

4. Tell the dealer which issue interests you. You might need to open an account with the dealer before you proceed.

5. Ask for a prospectus or offering statement that deals with the issue of interest.

6. Decide whether the risks, features and terms of the issue suit you.

7. Estimate the tax benefits you will get as a result of investing in the bond. Does it provide a better deal than you could get with other types of investments?

8. Call the broker and ask to invest in the issue.

9. Remember, the minimum investment in a municipal bond issue is usually $5,000.

Tips & Warnings

• If your income is $50,000 a year and you're filing a joint tax return, a 6 percent tax-free yield is equal to a taxable yield of 8.3 percent.