06/07/2018

Double Tax Exempt Income Can Make a Difference

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The advantage of earning income that is exempt from both federal and state income tax can make a meaningful difference to investors.

Barron’s recently reported* on the benefit of double tax-exempt income, particularly under the new tax legislation passed in late 2017.  The same article also provides a simple calculation for determining what is known as the taxable equivalent yield, or TEY.  Calculating the taxable equivalent yield enables an investor to compare the yield on a taxable bond to the yield on a bond producing income that is exempt from both federal and state income tax.  (*Subscription may be needed.)

To see how beneficial double tax-exempt income can be to you, see the illustrations on this site for each of the states in which we manage a state municipal bond fund:   Arizona, Colorado, Hawaii, Kentucky, Oregon, Rhode Island and Utah.  Each illustration shows what a taxable investment would have to yield to match a tax-free investment which is exempt from federal and state income tax.

 

For certain investors, some fund dividends may be subject to federal and state taxes, including the Alternative Minimum Tax. Consult your professional tax advisor.

The taxable equivalent yields displayed do not take into consideration individual taxpayer limitations on deductions. 

Mutual fund investing involves risk; loss of principal is possible. Investments in bonds may decline in value due to rising interest rates, a real or perceived decline in credit quality of the issuer, borrower, counterparty, or collateral, adverse tax or legislative changes, court decisions, market or economic conditions. Fund performance could be more volatile than that of funds with greater geographic diversification.

Before investing in the Fund, carefully read about and consider the investment objectives, risks, charges, expenses and other information found in the Fund prospectus. The prospectus is available from your financial advisor, when you call 800-437-1020, or on this site