Tax-free municipal bonds are beloved by high income investors, but individuals in lower brackets may be missing out on solid income elsewhere.
Municipal bonds are enjoying a moment among investors who are looking for tax-free income, but they should be wary of allowing tax savings to drive their decisions. This week, Wells Fargo Investment Institute highlighted the attraction of muni bonds as the Federal Reserve prepares to trim rates. Bond prices rise as yields fall, and a falling rate environment would result in price appreciation for municipal bonds.
Investors in lower tax brackets just might pick up more after-tax yield in the corporate space, considering that even though the interest from corporate bonds is taxed at the same rate as ordinary income, the levy may not take as big of a bite out of their returns.
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