Taxable Account vs Muni Bond Fund
In high federal and state brackets, **muni bond funds** can beat taxable bonds after tax—if you accept lower nominal yield and AMT quirks. **Taxable stocks/ETFs** favor long-term capital gains rates and growth.
Step by step
1. Compute tax-equivalent yield
Muni yield ÷ (1 - marginal tax rate).
2. State muni funds
In-state munis may avoid state tax.
3. Risk mix
Munis are not FDIC—credit risk exists.
Taxable equities vs munis
Allocation split by goals—growth vs after-tax income.
- Taxable stocks/ETFs: Growth; LTCG rates; volatility.
- Muni funds: Fed tax-free income; lower yield; rate risk.
Use our calculators
Common mistakes
- Ignoring AMT on some munis
- Chasing yield with risky high-yield muni funds
FAQ
Are all munis state tax free?
Often in-state only—check fund holdings.