Pay Less in Taxes with Muni Bonds
If you’re tired of having your investments taxed, consider investing a portion of your portfolio in tax-free municipal bonds (also called muni bonds).1 Income from tax-free muni bonds is exempt from federal taxes and, in some cases, state and local income taxes.
In addition to the tax benefits, quality muni bonds can help:
- Provide reliable income
- Preserve principal
Look beyond the Stated Interest Rate
Although it may appear at first glance that municipal bonds offer a lower rate than taxable bonds, they can allow you to keep more income on an after-tax basis. The standard way to compare the income from taxable and tax-free bonds is by looking at the taxable-equivalent yield. The taxable-equivalent yield is the interest you would need to earn on a taxable bond to equal the income a tax-free municipal bond provides after taxes are considered.
|How Tax-free Muni Bonds Work|
|Marginal Tax Rate|
|Tax-free Yield||Taxable-equivalent Yield|
Source: Edward Jones. This example does not represent currently available rates and does not illustrate the effect of state and local taxes or the alternative minimum tax (AMT).
The benefits of owning tax-free municipal bonds are long-lasting. Especially if you are in a higher tax bracket, we recommend you examine whether these bonds can provide more income than taxable bonds on an after-tax basis.
Contact your Edward Jones financial advisor for more information.
1Yield and market value may fluctuate if sold prior to maturity, and the amount you receive from the sale of these securities may be more than, less than or equal to the amount originally invested. Bond values may decline in a rising interest rate environment. Any bond called prior to maturity may result in reinvestment risk for the bond owner. May be subject to the alternative minimum tax (AMT). Municipal bonds may have original issue discount.
Edward Jones, its employees and financial advisors are not estate planners and do not offer tax or legal advice. Talk with your tax or estate professional for more information regarding your situation.