College-Bound? Hang on for Utah
My pal Less Antman has made a strong case for Indiana’s QSTP (Qualified State Tuition Plan), since temporarily downgraded until they get their administrative act together. But hang on: it looks as if the Utah legislature may have just fixed all the things that kept Less from ranking Utah ahead of Indiana. How nice that the states are beginning to compete in this arena. To find out when Utah’s changes become effective, if they do — and to shop around for the plan you like best — keep your eye on And remember: many QSTPs are open to residents of any state, regardless of where the beneficiaries may eventually choose to attend college. And that the beneficiary, in many instances, can be anyone you care about — your butler’s kids, for example, not just your own.

A millionaire writes: “How do I use your fund evaluator to get your suggestion for a higher yielding tax-exempt fund?”

You could go to the Fund Finder box (where it says “enter any part of the fund name”) and type in “high-yield” (without the quotes) and look through the list of funds that shows up for tax-exempt or municipals, of which there are several. (Note: If you are in a high-tax state, you will want to buy a fund that invests only in your state’s obligations.)

You have three basic decisions to make, it seems to me:

1. Do you really want to be in tax-frees at all? (Sounds like you do, and that’s fine. These days, tax-free bonds yield almost as much as taxable Treasury securities. So — especially if you’re in a high-tax state and buy safe “general obligation” bonds issued by that state — your after-tax return from municipals (as tax-free bonds are known) could compare very well with other fixed income investments, like taxable bonds or certificates of deposit or savings accounts.)

2. Do you want to invest in long-term bonds or short-term? (Huge difference. The first is a somewhat risky bet that interest rates will fall, or at least not rise much over the long run. The second is a convenient parking place for some dough until better opportunities come along.)

3. Do you want to invest via a fund or directly in bonds themselves? If you were a little guy, investing under $100,000, say, I wouldn’t recommend buying bonds yourself. But you’re not a little guy, so you may not want to give up the management fee that a fund charges . . . nor give up control over the specific kinds of bonds it buys. For example, you might prefer bonds with a specific maturity date. Or you might prefer bonds with an even lower level of risk than the ones the fund may sometimes buy to boost its yield (and, thus, boost its ability to attract new customers). The commission/spread you pay to invest in municipal bonds directly can be high, especially when it comes time to sell. But if you buy bonds that mature around the time you expect to need the money, you may avoid all sales costs by just waiting until they are redeemed.

As with anything, before buying municipal bonds, be sure you understand what you’re doing, what their call provisions are, and how much of a haircut you might have to take if you needed to sell them before they expired. The market for something like New York City general obligation bonds is deep, and even a full-service broker won’t gouge you too badly. But for some obscure dormitory, toll-road or hospital issue? That’s another story.


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