History

Congress established individual retirement accounts in 1974 as a means of providing a retirement savings vehicle for working individuals who were not covered by an employer-backed retirement program. The IRA concept has since expanded to cover most individuals who earn qualifying income, although there are some specific limits based on income level and age.

Municipal Bonds

Municipal bonds are debt instruments of governments and governmental agencies below the federal level. These may include bonds issued by states, counties, cities and public utility districts. Just as the interest from bonds issued by the federal government is free from state income taxes, the interest from municipal bonds is typically free from federal income taxes. As a result, the interest rate on municipal bonds is usually lower than the interest rate on a comparably rated corporate bond.

Considerations

It is perfectly acceptable for an individual to include municipal bonds in an IRA. Individuals should consider that one of the primary benefits of purchasing municipal bonds is their tax-free interest. Since the interest on investments held in an IRA is allowed to grow tax deferred, the investor should consider whether the higher interest rate offered by a comparably rated corporate bond might produce a greater return on investment.

Types

References

Resources

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