A 10-year Treasury bond now yields around 4.5 percent while a top-rated, 10-year municipal bond yields about 4 percent. In a taxable account, you probably will be better off in munis now.
Suppose you are in the 25 percent federal tax bracket. That means your taxable income this year will be between $30,650 and $74,200 (between $61,300 and $123,700, on a joint return).
In a 25 percent bracket, you’d net only 3.375 percent from the Treasury bond, after-tax. So you’d be ahead with the 4 percent tax-exempt municipal bond. If your tax bracket is higher, you’d lose even more to tax, with a Treasury bond, and a muni would be an even better choice.
It’s true that you can avoid state and local income tax by investing in Treasuries. If you are in a high-tax state, you can achieve the same result by investing in munis issued within your state.
