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Brandon318 · Joined: 28 Jul 2004 Posts: 1692 Location: Monterey, CA.

I want to invest $10,000 now and then use it in 22 months. To maximize my yield, I want to choose the most profitable yet the most secure medium for investing since this money will be used for a specific purpose. Zeros offer some great alternatives to T-bills and CDs, but what are the tax risks? I understand that earnings are being taxed as if they were ammortized even though you don't receive anything until the maturity date. Anyone care to discuss my options?
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Brandon
BMWCCA #346993
1991 325iC Alpine/Gray
1998 M3 Alpine/Modena
1994 318is (Murdered)

JRS · Joined: 09 Jun 2002 Posts: 2386 Location: USA

Zeros have two potential drawbacks. They are extremely volatile in the secondary market, so you risk losing money if you need to sell before maturity. And, unless you buy tax-exempt municipal zeros, or buy zeros in a tax-free account, you have to pay taxes every year on the interest you would have received had the interest, in fact, been paid.
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Is your cup half full or half empty ?

Brandon318 · Joined: 28 Jul 2004 Posts: 1692 Location: Monterey, CA.

Well, the secondary market isn't much of a concern since the zeros will basically be a high yielding savings account until I need the money. I've never purchased munis before, how do I get those?
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Brandon
BMWCCA #346993
1991 325iC Alpine/Gray
1998 M3 Alpine/Modena
1994 318is (Murdered)

donaldan · Joined: 01 Jul 2001 Posts: 1881 Location: Ft. Myers, FL

Have you thought of buying tax free municipal bond mutual fund? It is very liquid and you don't have to worry about maturity dates, etc. I used that instrument regularly when I was living in states with taxes, and when I had high income. Of course, nowadays, I live in the no-income tax state of Florida and my income has greatly diminished, being in the semi-retirement mode. Muni's are no longer a practical alternative.
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Don