Other Ways to Supplement Your Retirement Income
Comparing Taxable and Tax-Exempt Yields
When evaluating investments, you should compare the after-tax yield you are earning. How do you know when a tax-exempt yield is better than a taxable yield? You must look at a taxable investment on an after-tax basis in order to compare it with a tax-exempt obligation. Below is a chart that provides the after-tax yields on taxable securities. To use the chart, find the yield you expect to earn on a taxable investment. Then find your marginal tax rate. Where the row and column meet is the after-tax yield. For example, if your investment's taxable yield is 9% and you are in the 35% tax bracket, your after-tax yield is 5.85%.
Compare your tax-exempt yield with this number. You'll also need to factor in any state and local taxes when making your investment decisions.
If you decide to use tax-exempt municipal investments as a tax saving strategy, keep the following points in mind:
Occasionally, municipal funds declare a capital gain that will be taxed.
In addition, when planning an income tax strategy, consider the alternative minimum tax (AMT). For example, some municipal investments, such as private activity bonds, are subject to the AMT. Consult your professional tax professional to help you develop an income tax planning strategy.
Investment and insurance products and services are offered through INFINEX INVESTMENTS, INC.,
Member FINRA / SIPC. Infinex and Friend Bank are not affiliated. Products and services made available through Infinex are not insured by the FDIC or any other agency of the United States and are not deposits or obligations of nor guaranteed or insured by any bank or bank affiliate. These products are subject to investment risk, including the possible loss of value.