Low-risk municipal bonds yield up to 5% tax-free after bond-market turmoil; for some high earners, that can equal a taxable-equivalent yield above 10%. Advisers say reaching those yields often requires 25- or 30-year bonds, which carry rate and inflation risks.
Tax savings depend on a buyer’s circumstances. In the article’s example, a middle-class single filer in New York City with a 32% top marginal rate across city, state and federal taxes would need a 7.4% taxable yield to match 5% tax-free. Some municipal bonds may trigger the federal alternative minimum tax, and the article notes that munis make sense in taxable, not tax-sheltered, accounts.
One adviser favors shorter- and intermediate-term munis, targeting four-to-five-year duration for yields near 4%, or about 8% on a taxable-equivalent basis. Another planner argues that this figure represents taxes avoided, not additional income. For comparison, the article says many long-term munis yield 5%, versus 5.5% on 30-year Treasurys, which are federally taxed; it says munis produce better after-tax returns unless the marginal rate on top income is 9% or lower.
