Tax-free bonds are government-backed securities that don't have to pay income taxes.In most cases, you can avoid state or local income taxes, but you will need to pay federal income tax on the interest your bond earns.Tax-free bonds have the same interest rates, maturity dates and terms of redemption as other bonds.Tax-free bonds can be purchased through authorized brokers.Through your online account, you can purchase U.S. Treasury bonds.
Step 1: You can open a TreasuryDirect account.
The U.S. Treasury uses a secure online system called TreasuryDirect to allow you to buy and sell bonds.The website is www.treasurydirect.govYou will be asked if you are opening the account as an individual or a government agency.Provide personal identifying information.You need to give your name, contact information, and social security number.If you want to link your TreasuryDirect account to a bank account, you'll need to provide the account number and routing number.Personal access codes and passwords can be created.Treasury bonds are exempt from state income taxes, but you will have to pay federal taxes on the interest your bond earns.
Step 2: You have to sign in to your account.
You can access your account anytime after you create it by going to the TreasuryDirect home page and selecting the orange "Login" button.You will be directed to enter your password.You will be directed to your account.Passwords and access codes should be kept secure but accessible.Each time you sign in, you will need them.If you need assistance logging in, TreasuryDirect has a video demo.
Step 3: You can purchase a bond by selecting it.
You can purchase bonds through the U.S. Treasury from your main screen.You can purchase bonds directly from the issuer.All of these bonds have no state taxes on the interest earnings.You can invest in other non-tax free securities on TreasuryDirect.
Step 4: Pick the purchase amount and source of funds.
You need to know the size of the bond you want to buy.To withdraw funds from an external bank account, you will have to provide the information.
Step 5: Make sure your selection is correct and complete your purchase.
You will be shown a summary screen before your final purchase.To make sure you have selected the correct amount and bond, read it carefully.Click the button to verify your purchase when you are satisfied.
Step 6: Select a broker that is trustworthy.
You can work with a broker if you don't know much about bonds or you want to do it yourself.Investment brokers are trained to give financial advice and make purchases.Ask your friends for recommendations to find a broker.You can check with your own bank to see if they offer this service.It is now possible to research many brokers online.Before investing, read their credentials.
Step 7: There is a choice between a discount or full-service broker.
If you are well-educated in investing and need someone to make transactions for you, you may want to use a discount broker.Agencies and individuals who just make transactions but don't provide financial advice.If you want someone to provide recommendations and help you set up investments, then you should choose a full-service broker.
Step 8: Ask about the fees.
Before you invest with someone, you should know what their fees are.A commission can be charged as a percentage of the amount that you invest, or a flat fee for their service.Fee free or commission free investments may be advertised by some brokers.This sounds attractive, but you need to do some research.Look up the price of the bond that was quoted by the seller and compare it to the broker's price.Some brokers who offer free investing actually increase the price of the bond and take their commission that way.
Step 9: You should make your investment.
If you are working with a full-service broker, they can help you decide which tax-free bonds are most favorable.If you have done your own research and are working with a discount broker, you just need to identify the bonds you want to purchase.You will need a deposit of at least $5,000 to work with a broker.Some may open an account for less.Ask about the requirements so you know what you're getting.
Step 10: You can search online for government bonds.
Tax free bonds can be purchased directly from the national treasury in most countries.You can make purchases yourself or through a broker.You can open an online account with the U.S. Treasury to buy Treasury Bonds in the United States.You can learn about buying Canadian bonds at the government website in Canada.
Step 11: There are state bonds online.
You can use the internet to find tax-free bonds in your state.Information about sales offers can be found by reviewing those.In Massachusetts, the site www.massbondholder.com lists bonds that are currently for sale or about to be sold.You can get answers to questions about the bonds from investor disclosure statements.
Step 12: Search for bonds issued by the city.
You can use the internet to search for your city.The finance office website has links.Information about upcoming bond projects can be found on this website.Understand the types of bonds, interest rates and ratings by reading the information carefully.You can find the official site of the City of Chicago if you search for "Chicago tax free bonds."The bonds for sale and financial disclosure statements are reported by the City Finance Office.
Step 13: Look at the details of the bond.
The par is the amount being invested, the interest rate is being paid by the issuer, and the maturity date is when the full amount of the principal will be repaid.
Step 14: You can choose an acceptable maturity date.
Bond maturities will vary.Bonds can range from a few months to many years.There are usually penalties for withdrawing money before the maturity date.If you need access to your money, you may need to choose a shorter maturity bond.You are more likely to earn higher interest if you accept a more long-term investment.
Step 15: Know what you will get in interest payments.
At the time of maturity, bonds can pay interest, while at specific intervals over the life of the bond.A five-year bond may pay interest annually.Most U.S. Treasury bonds have semi-annual payments.
Step 16: Make sure you have tax-free status.
Some bonds are tax-free.If you are working with a broker, you should make sure that the bond provides the tax incentives you want.If you are buying on your own, you need to read the financial disclosure for the bond to verify its tax status.