Government Tax Free Bonds

Government tax free bonds are bonds issued by government agencies where the interest you earn is tax-except at least on the federal level. Many municipalities, such as cities, states and counties offer tax free municipal bonds as well.

A municipal bond is like an IOU that a government issues to raise funds for community projects. If you purchase a tax free municipal bond from a place in the state where you live, your earnings will be tax exempt on the state level as well.

There are many reasons a bond is issued and you can consider these reasons when choosing where to invest. A state might want to raise money to improve roads and bridges. A city might want to build a new hospital.

Utility companies may sometimes issue tax exempt bonds if the purpose of the bond is for the public good, rather than mostly increasing their profits. For example, if a new power plant needs to be built so there is enough electricity for a growing population, the option of issuing a government tax free bond for this purpose is usually granted. This would also apply to bonds from water companies, natural gas companies, etc -- again, where the main purpose is for the public good.

Another type of government tax free bond is the savings bond. Savings bond interest is exempt from state and local income taxes. Some or all interest may also be excluded from federal income taxes if it is used to finance higher education at an eligible institution.

So, the benefits on investing in government tax free bonds are wide and varied. You can find a utility project in your own area, reap the public benefits and earn tax free interest on your money. You can earn income tax free to fund your child's college education. Or you can simply sleep well at night, knowing your investments are backed by government agency assurances -- and the earnings are tax free!