The deal is one of the largest mixes of taxable and tax-exempt bond deals of its kind.

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Barnet Sherman is a director and the portfolio manager of the TIAA-CREF Tax-Exempt Bond Fund at TIAA-CREF.

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"This was a very big curve ball, " said Jay Wheatley, head of the tax-exempt bond syndicate desk at Citigroup.

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The "base" calculation includes one-half your Social Security, plus almost all your other income, including tax-exempt bond interest but not Roth withdrawals.

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Municipal bond coupons, once exempt, will be taxed.

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That means contributions to 401(k)s and other retirement plans, as well as itemized deductions for charitable giving, mortgage interest and state and local taxes would be hit by the 28% limit and municipal bond interest would only be exempt at the 28% rate.

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The investigation focused on a violation of federal tax laws intended to prevent tax-exempt borrowers, like PHEAA, from profiting from bond proceeds.

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Unlike corporate bonds or U.S. Treasuries, muni bond interest is often federal tax-free and exempt from state income tax of the state they are issued.

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