Here is a chart to help with the comparison.Įquivalent taxable yield in these tax brackets If the tax-free bond yield is higher, then you may want to consider it. To determine if munis make sense, you need to compare the after-tax yield of a similar taxable bond with the yield of the tax-free bond. It is only logical that the interest rates on municipal bonds are generally lower than those of similar taxable bonds. Does the tax-free nature of the interest justify the usually lower rate?.There are three issues to consider for municipal bonds: Their interest is exempt from federal income tax and may be free from state tax if the bonds are from your home state. States, cities, and other local authorities issue municipal bonds (munis) to fund their general activities or to fund a specific project. You may want to consider municipal bonds as part of the fixed income portion of your investment portfolio.
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