The Municipal Bond Tax Equivalent Yield Calculator has been designed to help you estimate the additional usable profit that municipal bonds generate based on the assumption that it won’t be taxed by the federal government. To use this tool you will need to enter the bond’s yield amount, your total estimated taxable income, your federal tax filing status, and your state income tax rate. After entering this information click on “Calculate.” This will create a Tax Equivalent Yield bar graph that compares fully taxable, federally exempt, and state and federal exempt investment yields.
Municipal Bond Tax Equivalent Yield Calculator Overview
If you are interested in investing in the securities market then you may want to consider investing in municipal bonds. Municipal bonds, also referred to as munis, are usually issued by governmental organizations like local governments, states, cities, and even school districts.
These organizations issue municipal bonds in order to raise funds needed for a specific capital development project. In exchange for cash, the entity agrees to repay the bond holder within a specific period of time with interest. Most municipal bonds mature between 20 and 40 years; however, some municipal bonds have shorter maturity rates.
Example: the local government wants to build a new highway
The highway will cost $2 million. If they don’t already have the cash available to finance the project, the local Government needs to borrow the money from somewhere.
They can go to the bank, but the interest rate is high and doesn’t offer value for taxpayer money. So instead they decide to make bonds available for members of the public to buy – 200 bonds worth $10,000 each.
These bonds have a yield of 5% and mature after 20 years – this means that at the moment of maturity, the local government will repay the bond in full, plus any outstanding interest.
How To Use The Municipal Bond Tax Equivalent Yield Calculator
Here’s how to get started:
Enter the bond yield – this is like the interest you are charging the organization for the privilege of using your money for their project
Input your total estimated taxable income – accounting for any adjustments
Add the level of income tax you are required to pay by your state
Select the appropriate tax filing status from the drop-down list
Click Calculate to see your results represented in a bar graph – you will see your original tax equivalent yield, alongside how much it is when exempted from Federal tax, or State and Federal tax
To see the results in a table instead, click View Report.
Who is this Calculator for?
This calculator is most useful if you:
Are considering investing in a tax-exempt municipal bond
Would like to compare the benefits of municipal bonds with differing exemptions
What are the pros and cons of investing in municipal bonds?
Among the advantages of investing in a municipal bond is that the interest earned on a municipal bond investment is usually exempt from federal taxation. This makes municipal bonds a possible tax shelter option for your income. Additionally, you can generally expect a better rate of interest than a savings account, and although bonds are higher risk, the nature of the organizations that offer municipal bonds (local governments, schools, etc) provide a certain level of assurance.
The disadvantage with most bonds is not having access to the money as and when you need it, however many municipal bonds offer call provisions, allowing you to recall your funds – at the cost of losing interest payments. As implied above, the risk of default is lower than with corporate bonds, although municipal bonds are more susceptible to interest rate fluctuations – particularly those with long maturity.
Current Mortgage Rates
Current Home Equity Rates
Current Auto Rates
Refi.com is a property of Three Creeks Media. Neither Refi.com nor Three Creeks Media are associated with or endorsed by the U.S. Departments of Defense or Veterans Affairs. The content on Refi.com is produced by Three Creeks Media, its partners, affiliates and contractors, any opinions or statements on Refi.com should not be attributed to the Dept. of Veterans Affairs , the Dept. of Defense or any governmental entity. If you have questions about Veteran programs offered through or by the Dept. of Veterans Affairs, please visit their website at va.gov. The content offered on Refi.com is for general informational purposes only and may not be relevant to any consumer’s specific situation, this content should not be construed as legal or financial advice. If you have questions of a specific nature consider consulting a financial professional, accountant or attorney to discuss. References to third-party products, rates and offers may change without notice.
Advertising Notice: Refi.com and Three Creeks Media, its parent and affiliate companies, may receive compensation through advertising placements on Refi.com; For any rankings or lists on this site, Refi.com may receive compensation from the companies being ranked and this compensation may affect how, where and in what order products and companies appear in the rankings and lists. If a ranking or list has a company noted to be a “partner” the indicated company is a corporate affiliate of Refi.com. No tables, rankings or lists are fully comprehensive and do not include all companies or available products.
Editorial Disclosure: Editorial content on Refi.com may include opinions. Any opinions are those of the author alone, and not those of an advertiser to the site nor of Refi.com.
Information from your device can be used to personalize your ad experience.