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Ask the Fool Municipal Bonds

Q: What should I know about municipal bonds? - T.K., ChicagoA: "Munis" are how many state and local government entities gather the funds for expenses such as building bridges, expanding schools, financing road improvements, and so on. Government

Q:

What should I know about municipal bonds?

- T.K., Chicago

A:

"Munis" are how many state and local government entities gather the funds for expenses such as building bridges, expanding schools, financing road improvements, and so on. Governments borrow the money from investors, and the fixed interest rate they pay is usually exempt from federal taxes and often exempt from local taxes, though it is taken into account by Social Security. Capital gains on municipal bonds are taxable, and munis sometimes trigger the alternative minimum tax, so perhaps you should consult a tax adviser before buying any.

Not all municipal bonds are alike. Some issuers are riskier than others, and rates vary. "General obligation" municipal bonds are backed by the issuer's credit, while "revenue bonds" can be riskier, as they depend on the project being funded to generate the needed revenue. The minimum investment in municipal bonds is often $5,000.

You can learn more at

» READ MORE: www.bondbuyer.com

and

» READ MORE: www.investinginbonds.com

.

Q:

Where online can I find information on colleges and financial aid?

- H.E., Philadelphia

A:

The U.S. Department of Education (

» READ MORE: www.ed.gov

) offers a wealth of information on government student-aid programs. Read its excellent handbook at

» READ MORE: http://studentaid

. ed.gov/students/publications/

student_guide/index.html. The

» READ MORE: www.finaid.org

Web site has the scoop on everything from scholarships to alerts on popular financial-aid scams (type "scam" into the search box). At

» READ MORE: www.fastweb.com

you can search a large scholarship database.

For more information, try

» READ MORE: www.collegeboard.org

,

» READ MORE: www.petersons.com

,

» READ MORE: www.campustours.com

and

» READ MORE: wwwl.fool.com/college

.