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Types of Bonds

Investment Strategy Considerations

Zero coupon municipal bonds offer certain tax advantages and are often attractive to investors seeking long-term capital accumulation for retirement, education funding or other long-range savings goals. Individuals can time the maturity of their investment to match their future needs.

  • Retirement planning—Zero coupon municipal bonds can be used to supplement a retirement savings program. They are not, however, suitable for Individual Retirement Accounts (IRAs) or qualified pension plans because these plans already have tax advantaged status.
  • Education funding—A municipal zero portfolio can be structured to mature during a child’s or grandchild’s college years.
  • Gifting—Assets given today under the annual estate and gift-tax exclusion of $13,000 per person can continue to grow with the tax benefits of zero coupon municipal bonds.
  • “Kiddie tax”—Since passage of the Tax Reform Act of 1986, Uniform Gift to Minors Accounts generating more than $1,800 in annual income for minors under the age of 18 are taxed at the parents’ or guardians’ rates.  
 

All information and opinions contained in this publication were produced by the Securities Industry and Financial Markets Association from our membership and other sources believed by the Association to be accurate and reliable. By providing this general information, the Securities Industry and Financial Markets Association makes neither a recommendation as to the appropriateness of investing in fixed-income securities nor is it providing any specific investment advice for any particular investor. Due to rapidly changing market conditions and the complexity of investment decisions, supplemental information and sources may be required to make informed investment decisions.