I realize that an IRA , and it's interest/dividends, are not taxable
>until the money is withdrawn, and then it is taxes as ordinary
>income.
>
>Consequently, there is no advantage in investing in tax exempt
>securities , such as municipal bonds, in an IRA account..
>
>
>HOWEVER..... If an IRA account were to have investments in
>tax exempt securities, and the interest from those securities are
>designated to be paid into a non-IRA account, where they may
>be withdrawn at will, are these proceeds (and not the principle) > still tax exempt ? >
>Is this a reasonable way to obtain tax exempt income from an
>existing IRA without getting on the wrong side of the IRS ?
>
> Thanks for your informed advice..
>
Any moneys distributed to you from your IRA is ordinary income, unless you have mad nondeductible contributions, and filed form 8606, in which case form 8606 is used to determine how much of the distribution is taxable.
An IRA converts interest, dividends, qualified dividends, long term and ahort term gains, and other forms of earnings into ordinary income.
So if your traditional IRA has tax exempt bonds which throw off interest, distributions taken from the IRS are still ordinary income.
I would not recommend that your IRA be invested in municipal bonds.