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75-1000 Henry St, Suite 200
Kailua-Kona, HI 96740
  • Phone:
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  • Phone:
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  • Fax:
    Hawaii (808) 327-5411
  • E-mail address: john.anderson@natplan.com
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Printed from: www.andersonwealthplanning.com
  • Anderson Wealth Planning, Inc
  • 75-1000 Henry St, Suite 200, Kailua-Kona, HI 96740
  • Hawaii (808) 327-5410  Pennsylvania (267) 454-7835  Kentucky (502) 938-4297 | john.anderson@natplan.com

Taxable Equivalent Yield

Taxable vs. Tax-Exempt Yields

If the municipal bond was issued by the state in which you live, the interest is normally free of state taxes. Although the interest income may be tax-free, any capital gains will be subject to taxation.

Municipal bonds are sold by cities, counties, states and other political bodies (public hospital, school district).

The federal government and its agencies do not sell municipal bonds. However, most municipal bonds are free of federal income taxes, although they may be subject to the alternative minimum tax. Because of this, the stated interest rate on municipal bonds is typically lower than comparable non tax-exempt bonds.

How much would you have to receive from a taxable bond to realize an equivalent yield? You can find the answer by entering the following information:

The results below show the rate of return you would have to receive from a taxable investment to have the same after-tax income as you would from a tax-exempt alternative, such as a municipal bond. The higher your federal income tax bracket, the greater the taxable return required to make your after-tax income the equivalent of a tax-exempt investment.

Your Results

The yield on the municipal bond you are considering: 0%
Your federal income tax bracket: 0%
A comparable taxable bond of equivalent risk would have to yield: 0%

Note that in some states you will have to pay income tax if you buy bonds that have been issued by other states. In addition, while municipal bonds are not subject to federal income taxes, they may be subject to federal, state, or local alternative minimum taxes. If you sell a tax-exempt bond at a profit, there are capital gains taxes to consider. The principal value of bonds fluctuates with market conditions. Bonds redeemed prior to maturity may be worth more or less than their original cost. This hypothetical example is used for illustrative purposes only. Results do not reflect the actual performance of any particular investment vehicle.

This chart shows the taxable yield you would need to achieve at your tax rate to generate after-tax income equivalent to that of a tax-free vehicle.

Tax-Exempt Yield vs. Taxable Yield

 

Note that in some states you will have to pay income tax if you buy bonds that have been issued by other states. In addition, while municipal bonds are not subject to federal income taxes, they may be subject to federal, state, or local alternative minimum taxes. If you sell a tax-exempt bond at a profit, there are capital gains taxes to consider. The principal value of bonds fluctuates with market conditions. Bonds redeemed prior to maturing may be worth more or less than their original cost. This is a hypothetical example intended for illustrative purposes only. Results do not reflect the actual performance of any particular investment vehicle.

This hypothetical example is used for illustrative purposes only. Actual results will vary.

The information in this calculator is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security.

This material was written and prepared by Emerald Connect, LLC.
© 2019 Emerald Connect, LLC. All Rights Reserved.

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Contact Us

75-1000 Henry St, Suite 200
Kailua-Kona, HI 96740
  • Phone:
    Hawaii (808) 327-5410
  • Phone:
    Pennsylvania (267) 454-7835
  • Phone:
    Kentucky (502) 938-4297
  • Fax:
    Hawaii (808) 327-5411
  • E-mail address: john.anderson@natplan.com

Market Watch

February 19, 2019 @ 09:21 AM

Ticker Name Percent Difference (when noted with %) otherwise Last Price Difference (where applicable)
Dow Jones Industrials ETF +0.5%  
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S&P 500 ETF +0.4%  

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All information herein has been prepared solely for informational purposes, and it is not an offer to buy or sell, or a solicitation of an offer to buy or sell any security or instrument or to participate in any particular trading strategy. 

 

Securities and investment advisory services offered through National Planning Corporation (NPC), NPC of America in FL & NY, Member FINRA/SIPC, and a Registered Investment Adviser. Registered Representatives of NPC may transact securities business in a particular state only if first registered, excluded or exempted from Broker-Dealer, agent or Investment Adviser Representative requirements.  In addition, follow-up conversations or meetings with individuals in a particular state that involve either the effecting or attempting to effect transactions in securities, or the rendering of personalized investment advice for compensation, will not be made absent compliance with state Broker-Dealer, agent or Investment Adviser Representative registration requirements, or an applicable exemption or exclusion. Anderson Wealth Planning and NPC are separate and unrelated companies.

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