Things aren’t always as they seem. Due to their tax-exempt status, municipal bonds often have lower yields than taxable counterparts, such as Treasurys and corporate bonds*. Investors should examine taxable-equivalent yields, as well as applicable risks, to help determine whether muni bonds represent a good value. The good news is that our Tax-Equivalent Yield Calculator can help.
Determine your actual tax rate
Assuming maximum for all tax brackets, it's fair to assume your AGI is high enough in order for the Limitation on Itemized Deductions (PEASE) to apply to you. This limitation effectively adds 1.18% to your marginal tax rate. This assumption is reflected in the output.
Your marginal tax rate on investment incomeC
Tax Rate (Net)†**
Tax Rate (Net)†
Top Tax Rate
On Investment Income†D
If you could get the following yield on an in-state municipal bond:
You'd need this yield to get equivalent after-tax income1
Eaton Vance is a premier municipal bond manager and among the largest municipal investment teams in the U.S.
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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 October 1, 2014. Rates are sourced from www.taxfoundation.org
§ The Overall Morningstar Rating for a fund is derived from a weighted average of the performance figures associated with its 3-, 5- and 10-year (if applicable) Morningstar Rating 2014 Morningstar, Inc. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers is responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results. For each fund with at least a 3-year history, Morningstar calculates a Morningstar Rating based on how a fund ranks on a Morningstar Risk-Adjusted Return measure against other funds in the same category. This measure takes into account variations in a fund’s monthly performance after adjusting for sales loads (except for load-waived A shares), redemption fees and the risk-free rate, placing more emphasis on downward variations and rewarding consistent performance. The top 10% of funds in each category receive 5 stars; the next 22.5% receive 4 stars; the next 35% receive 3 stars; the next 22.5% receive 2 stars; and the bottom 10% receive 1 star. Share classes other than those listed here may have different ratings. As of 1/31/16: EMOIX was rated 5 stars for 3 years/299 funds. EIHYX was rated 5 stars for 3 years/160 funds; 5 stars for 5 years/150 funds; 3 stars for 10 years/98 funds. EILTX was rated 5 stars for 3 years/299 funds; 5 stars for 5 years/251 funds. EIBSX was rated 4 stars for 3 years/184 funds; 4 stars for 5 years/169 funds. EIHMX was rated 4 stars for 3 years/180 funds; 5 stars for 5 years/176 funds; 3 stars for 10 years/142 funds. EVMBX was rated 4 stars for 3 years/180 funds; 5 stars for 5 years/176 funds; 3 stars for 10 years/142 funds.
* Interest on municipal bonds is generally exempt from federal income tax; however, some bonds may be subject to the alternative minimum tax (AMT). Typically, state tax exemption applies if securities are issued within one's state of residence and, if applicable, local tax exemption applies if securities are issued within one's city of residence. The tax-exempt status of municipal securities may be changed by legislative process, which could affect their value and marketability.
The tax advantage of municipal bonds is eliminated if they are held in tax-sheltered accounts, such as a regular IRA, SEP or Qualified Plan, since (a) funds withdrawn from a tax sheltered account are taxed at distribution and if withdrawn prior to age 59 may be subject to a 10% federal tax penalty, without regard to whether the interest/principal originally came from a tax-exempt source, and (b) all qualified distributions out of Roth IRAs are tax-free, again regardless of origin. Speak to your Tax or Legal Advisor for further information.
The taxable equivalent yield (TEY) measures what an investor would have to earn (yield) on a taxable (or fully taxable) investment in order to match the yield provided by a tax-exempt municipal bond. The TEY is only one factor that should be considered when purchasing a security, and is meant to be used only as a general guideline when determining taxable equivalent yields for agency and treasury securities.
** The state tax rate shown here is net of the benefit of the federal itemized deduction.
*** 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.
† The displayed rates have been rounded to the nearest hundredth of a percent.
1 Output reflects the taxable yield required to equal the tax free yield of a municipal bond that is exempt from both state and federal income taxes.
2 Out-of-state munis are exempt from federal taxes, but not state and local taxes. Some out-of-state munis may also be exempt from state and local taxes, depending on your state and the state of the bond you purchase. Private Activity Bonds are subject to AMT, and if a taxpayer is subject to the AMT they would be subject to federal tax.
3 U.S. Treasurys are exempt from state taxes.
4 Other fixed income may include corporate bonds, floating-rate loans and other sovereign debt, among others.