This is probably a stupid question, but are they tax free only if you buy bonds ...

exclusiv · on May 9, 2016

You can invest in any state but yes tax-free for the state you live in.

Check http://www.cefconnect.com/closed-end-funds-screener and choose tax free.

I see a few in NJ over 5%: MUJ, MYJ, NXJ. NXJ is at a 10% discount. I've been basically doing those Nuveen & Blackrock equivalents in CA.

I usually go for discount to net asset value so I feel like it has room to appreciate so I can lock in a gain outside of the monthly dividends. And if they go down you can always scoop up more which will then have a higher annual dividend yield.

a_small_island · on May 9, 2016

And what happens if the muni goes bankrupt

exclusiv · on May 9, 2016

That would happen if the state or key cities defaulted. I'm betting that they'd get bailed out by the Feds since they like bailing out banks. :)

11thEarlOfMar · on May 9, 2016

They are state tax free if they are issued in the state you live in. If they are federally tax free, they are tax free in any state. Be aware that not all MUNIs are federally tax free.

You would not get the state tax free benefit of a California bond if you live in New Jersey. But you would get the federal tax free portion.

I suggest that you confirm with your brokerage's fixed income team before proceeding.