The Bogleheads' Guide to Investing

For investors who live in a city with a local tax, owning municipal bonds issued by their local government can be triple tax-free, since they’d pay no federal, state, or local taxes on the income from those bonds. Because of these tax advantages, municipal bonds, which normally yield less than comparable taxable bonds, can make sense for investors in the higher tax brackets (usually 25 percent and above). However, you’d need to check the tax-free bond’s yield against other available taxable bond choices to see which would give you the greatest after-tax return. Since there are federal, state, and possibly even local tax issues at play in an investor’s decision, covering every possible scenario is beyond the scope of this book. Rather, you should consult with your tax advisor or use an online calculator to determine if municipal bonds make sense for you. Here are two free online calculators that can help you determine which type of bond or bond fund (muni or taxable) would give you the greatest after-tax return: Visit https:// investor.vanguard.com/ home and search for “taxable-equivalent yield calculator” (without the quotes). Visit www.TRowePrice.com and search for “Tax-Free Equivalent Yield Calculator” (without the quotes).