At this time, Boldin does not have a feature for federal or state tax-exempt interest. The software computes and taxes interest annually for accounts with the Ordinary Income tax treatment. Interest will increase savings balance based upon the rate of return you enter.
If you want more granularity and to account for interest income that is exempt from Federal income tax, we generally recommend one of the following methods.
Both methods fully exempt the interest at the federal and state levels, so they fit bonds that are tax-free at both — most commonly an in-state municipal bond (one issued by your own state). If your bond was issued by another state, see "Out-of-state municipal bonds" below.
Method 1
Navigate to My Plan > Assets and Debts
Add an Investment account
Select Ordinary Income tax treatment
Set the rate of return to zero
Navigate to My Plan > Income > Pensions
Add a Pension to represent the monthly interest
Set the COLA to 0%
Select "No" for taxes
Method 2
When you use this method the Planner will increase the account balance based upon your rates of return, but neither the interest nor withdrawals will be taxed at any level.
Navigate to My Plan > Assets and Debts
Add an Investment account
Select Capital Gains treatment
Enter a Cost Basis that is higher than your Account Balance
Set your rates of return
Out-of-state municipal bonds
A municipal bond issued by another state is exempt from federal tax but still taxable by your state. Boldin's pension tax settings offer "Federal Only" and "No," but not a "State Only" option, so there is currently no way to model federal-exempt-but-state-taxable interest exactly.
The closest approximation is to use Method 1 or 2 above (which exempt the interest at both levels) and manually account for the state tax you still owe on that interest. This slightly understates your total tax by the state portion, so keep an eye on it if the amount is large.
NOTE: Due to the lack of a specific feature for tax exempt assets, the Planner will not recognize the interest in the MAGI for IRMAA when using either method. We recommend that you manually monitor your IRMAA brackets if this is a large amount.