Income Investing: Municipal Bonds to Earn 1% - 3%

Don't let a few headlines about jursidictions with financial woes scare you away from these tax-exmpt yields.

On the surface, bonds issued by state and local governments don’t pack much of a yield punch. But Uncle Sam generally doesn’t tax muni interest, which may be exempt from state taxes, too. Those breaks add up, especially for investors in the higher tax brackets. A 2% yield from a muni bond translates to a taxable yield of 3.3% for taxpayers in the top, 39.6% bracket. Add in a 3.8% Medicare levy on high-income earners, and the taxable-equivalent yield of 2% tax-free climbs to 3.5%.

Subscribe to Kiplinger’s Personal Finance

Be a smarter, better informed investor.

Save up to 74%

Sign up for Kiplinger’s Free E-Newsletters

Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.

Profit and prosper with the best of expert advice - straight to your e-mail.

Sign up

To continue reading this article
please register for free

This is different from signing in to your print subscription

Why am I seeing this? Find out more here

Daren Fonda
Senior Associate Editor, Kiplinger's Personal Finance
Daren joined Kiplinger in July 2015 after spending more than 20 years in New York City as a business and financial writer. He spent seven years at Time magazine and joined SmartMoney in 2007, where he wrote about investing and contributed car reviews to the magazine. Daren also worked as a writer in the fund industry for Janus Capital and Fidelity Investments and has been licensed as a Series 7 securities representative.