Municipal bonds should be like roses to a garden for the rich folk. However, they are not the only ones who can benefit from municipal bonds. Municipal bonds have a yield of 5.1%, and their taxable brothers have to carry a yield of at least 8% to equal the payout for people in the 36% tax bracket. Better yet, the gain on the municipal bonds is tax exempt.
Another good idea is to buy the municipal bonds from within your state. The advantage here is that this way the gain that is exempt from federal taxes will also be exempt from state taxes.
There are two ways to invest:
Remember that the income gain on the municipal bonds is tax-free but when you cash them out, the capital gain you make on them is taxable.