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The Short Answer

What Are Municipal Bonds?

These five questions can help you figure out whether to invest in municipal bonds (and the best way to do it).

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Municipal bonds are issued by state and local governments to finance public projects like buildings and roads. At first blush, they are maybe not the most exciting investment. 

But here's where they become interesting: These types of bonds provide tax advantages that can be especially beneficial to investors in higher tax brackets. In some instances (particularly if issued by a state or municipality in which you reside), muni bonds' income is not taxed at the state or local level, either. This is a big consideration if you live in a high-income-tax state, such as California, New York, or New Jersey.

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Karen Wallace does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.