SEASIDE - Saving money to meet short and intermediate term needs is commendable but can a person “save” too much? Excess savings left in taxable types of accounts can add an unnecessary tax burden. But there are ways to pay less income tax on non-retirement savings.

One alternative is to use tax-exempt investments, such as municipal bonds. Issued by state and local governments, these interest bearing instruments are generally free from federal income tax. And for investors residing in the locale of issue, interest may be free from state and local tax as well. Compared to taxable bonds, municipals will probably provide lower yields but can benefit individuals in higher tax brackets.

There are other considerations to take into account when considering the purchase of municipal bonds in any form.

Rising and falling interest rates typically affect a bond’s value. Rising rates cause values to decline, while falling rates cause values to increase.

Selling a bond prior to maturity may return more or less than the original investment.

Profits from the sale of municipals are not exempt from capital gains tax.

Bonds with higher yields most likely have a corresponding higher risk.

Municipal bond interest may trigger Alternative Minimum Tax (AMT).

The interest from municipal bonds is included in the calculation for determining the taxation of social security benefits.

You may purchase municipal bonds individually, as a mutual fund, or in a unit investment trust.

As with any investment there are advantages and disadvantages. Careful selection is needed to ensure quality and tax savings.

Consult with your financial professional and/or tax advisor to determine if municipal bonds are appropriate for you.

Teresa Brown is a Registered Representative of INVEST Financial Corporation (INVEST), member FINRA, SIPC. INVEST is not affiliated with TMB Financial, LLC. Securities, advisory services and insurance products are offered through INVEST and affiliated insurance agencies. INVEST does not offer tax advice. Teresa Brown can be reached at (50) 861-9402.

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