Results may not represent the experience of individual investors, and should not be construed as tax or legal advice. The use of tools cannot guarantee performance. Any references to future returns should not be construed as an estimate of the results a client portfolio may achieve. Product availability and customization options may vary by firm and platform.

The output of this calculator is for educational purposes only and should not be considered investment, legal or tax advice. The output is general in nature and may not apply to your individual tax situation and is not intended to serve as the primary or sole basis for your investment or tax-planning decisions.

For more individualized information, you should consult your tax advisor or investment professional. You bear sole responsibility for any decisions you make based on the output of this calculator. The calculator makes certain assumptions that may not apply to you. The calculator has many inherent limitations and individual results may vary.

Tax rates and tax laws are updated through June 10, 2019.

^* Taxable income is your gross income, less certain adjustments (expenses, qualified account contributions, alimony paid), less all deductions (mortgage interest, property taxes, charitable contributions.). For calculation purposes, Head of Household is used as the Filing Status. There are additional statuses available that are not reflected in this tool.

^† The displayed rates have been rounded to the nearest hundredth of a percent. The Top Tax Rate on Investment Income may not add up to the displayed rates due to rounding.

¹ Income is grossed up at [ 1 minus the Effective Tax Rate ] and all interest income is exempt from Federal Tax. If state portfolios are selected, all interest income is exempt from State & Federal Tax.

² In tax years beginning in 2013 and later, a 3.8 percent Net Investment Income Tax (NIIT) applies to individuals, estates and trusts that have net investment income above applicable threshold amounts. This is commonly referred to as the Health Care Tax.

³ You are subject to a 2.35% Medicare Tax which is also reflected in your marginal tax rate on ordinary income. As part of the 2010 Patient Protection Affordable Care Act (ACA), certain high earners are subject to a 0.9% additional Medicare tax on wages and self-employment income. Alternative Minimum Tax (AMT) is ignored in this analysis as the effect cannot be calculated only with taxable income. It is possible that it could impact your marginal tax rate. Some local jurisdictions may levy an income tax even though they are not shown as a choice in this calculator. If this is the case your marginal tax rate may be higher than what is displayed.

The information presented in the scenario tool is for hypothetical and illustrative purposes only. Results may not represent the experience of individual investors, and should not be construed as tax or legal advice. The use of tools cannot guarantee performance. Any references to future returns should not be construed as an estimate of the results a client portfolio may achieve.

Yields, cumulative income and total return shown do not reflect the effect fees imposed by an investment manager nor does it reflect the impact of taxes. Fees and taxes will reduce the value of a client’s portfolio. Past performance is no guarantee of future results.

The simulations presented do not represent the results that any particular investor actually attained. The information presented is based, in part, on hypothetical assumptions entered by the user. No representation or warranty is made as to the reasonableness of the assumptions made or that all the assumptions used in achieving the returns have been stated or fully considered. Simulated results have many inherent limitations and no representation is made that any account will or is likely to profit similar to those shown in the scenarios. Actual performance results may differ, and may differ substantially, from the simulations. Changes in the assumptions may have a material impact on the hypothetical results presented.

RISKS: Municipal securities are subject to the risk that legislative changes and local and business developments may adversely affect the yield or value of the strategy’s investments in such securities. Municipal securities are subject to credit risk, which is the risk that the issuer could default on interest or principal payments. Municipal securities are subject to interest rate risk. Rising interest rates could reduce the value of the bonds in the portfolio, thus adversely affecting the value of the overall investment.

Scenario Assumptions: All returns and yields are gross of fees and taxes. The hypothetical laddered portfolio is defined by user inputs (i.e. the maturity start and end year in the tool above) where an equal investment is allocated to each maturity from “x” to “y” years. The length of the ladder “x” to “y” is determined by the “Ladder Range” input. As the first year bond matures or rolls down outside the specified ladder range and needs to be sold, additional bonds are purchased on the furthest rung of the ladder using those proceeds. It is assumed that bonds are purchased at par where the coupon equals the yield. "Income" refers to coupon income. Yield curves are calculated using a basket of bonds generated by a rules based search of the municipal bond universe found on Bloomberg.

All Tax-Exempt Yields, income and return data shown do not reflect the effect of fees imposed by an investment manager nor does it reflect the impact of taxes. Tax-Equivalent Yields, income and return data reflect grossing up income using the highest federal and EFFECTIVE state tax rates and also the 3.8% Additional Medicare Tax; however, capital gains taxes are not reflected. The effective state income tax rate is calculated using the highest state income tax rate and assumes a deduction from Federal income taxes. Past performance is no guarantee of future results. Fees and taxes will reduce the value of a client’s portfolio.

The criteria used in selecting these bonds are as follows: All bonds are Tax-Exempt General Obligation or Revenue Bonds. The maturity size for each bond is $2 million or greater. The dated date for each bond is greater than 01/01/2011. The range of maturities in the basket are from 1 to 20 years. Bonds with maturities greater than 10 years have a 9 or 10 year call. Bonds with maturities 10 years and less have a coupon between 4% and 5%, whereas bonds maturing greater than 10 years have a minimum coupon of 5%.

Each bond has at least one rating from either Moody’s, S&P and Fitch, with the lowest rating being "AA-", "A-" or "BBB-" dependent upon the curve. The “Ladder Quality” input determines which yield curve is used. These are approximate yields and may not represent an investor’s actual portfolio yield. The hypothetical yield curves assume that approximately 50% of the holdings in the “AA” rated laddered sample are in the AAA rated category; that holdings in the “A” rated ladder sample are approximately evenly divided between AA and A rated category holdings; and that approximately 15% of the holdings in the "BBB" rated ladder sample are in the BBB rated category.

Changes in purchase yields over the life of the laddered portfolio are determined by modifying the original purchase yields by the “Interest Rate Shock” inputs. For example: If the user chooses a 2% rise in rates over 5 years, the model will assume rates rise .40% per year each year for 5 years for all rungs of the ladder. The model then assumes rates stay flat in the years following.

Maturing and sold proceeds are reinvested at the new adjusted yield in the longest rung of the Ladder. Each rung has a specific duration. The “Starting Average Duration” (i.e. the starting average duration in the tool above) is the average duration of the portfolio. The “Starting Average Maturity” is the average maturity of the portfolio. The “Starting Average Yield” is the average yield to worst of the portfolio. The change in yield is determined as follows: After one year, what was originally an “x” year bond will be an “x”-1 year bond with a yield equal to the original “x”-1 year yield, plus or minus any yield change applied from the model’s Interest Rate Shock inputs. The annual total return of the laddered portfolio is calculated by adding the average annual coupon income from each bond and the weighted average of the change in price of each bond. The change in price of each bond is calculated by subtracting the price at the beginning of the year from the price at the end of the year divided by the beginning price. The bond prices are derived using the price function assuming non-callable bonds, redemption at par, semiannual coupons and are calculated off of the change in yields as detailed above.

Tax Alpha Assumptions: Realized capital losses can be used to offset taxable capital gains, resulting in ‘Tax Alpha’ by reducing an investor’s tax liability and adding the tax savings back into the portfolio.

This tool estimates potential Tax Alpha effects given a rise in interest rates over a specified period. As rates rise, the price of bonds decreases resulting in unrealized losses to the portfolio. These losses can be harvested throughout the year and used to offset capital gains to generate a Tax Alpha effect.

Notes:

• Tax Alpha for each annual period is a weighted average of the tax alpha generated by each bond. It is estimated by multiplying the price decline of each bond by the top marginal tax rate in effect.
• Bonds held are non-callable, redeem at par and pay semi-annual coupons.
• Prices are calculated based on the changes in yield, as detailed above.
• Tax Alpha proceeds are reinvested into the portfolio and earn the average portfolio return over the horizon.

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