Retirees normally buy municipal bonds for tax-free income. Indeed, the tax-equivalent yields of munis can regularly exceed that of taxable bonds, especially in the highest tax bracket. But investors who don't yet need interest income to live on can also wisely buy them in an IRA.
Yes, there's a twist coming - no one would ever consider buying a muni in a tax-deferred account, right? Wouldn't the IRA's tax-deferral benefit be unnecessary for a bond that is already tax free?
Of course it would be, and that's why you wouldn't buy a tax-free muni in your IRA. Instead, I'm suggesting that you put a taxable muni in it.
It's a revelation to many that some municipal bonds are taxable. And with that taxable status comes a higher yield-to-maturity than on tax-free munis. And if both are bought outside of an IRA or other tax-deferred account, the tax-free muni might well…