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9 Municipal Bond Funds for Tax-Free Income

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Anyone looking to tamp down their tax bill for next year need look no further than municipal bonds. They’ve been around for decades, but many people still aren’t familiar with this particular debt investment – as well as the municipal bond funds that hold them.

Municipal bonds deliver tax-advantaged income to investors at regular intervals. At a minimum, muni bond income is exempt from federal tax. Depending on where you live and where the bonds are issued, that income also might be clear of state and even local taxes.

If you’re a high-income earner, munis are for you, says Jim Barnes, Director of Fixed Income at Bryn Mawr Trust. “The primary way to determine whether muni bonds are a good or bad investment for an investor boils down to the investor’s marginal tax rate. A high marginal tax rate equates to a higher taxable equivalent yield when comparing different investment options,” he says. “The higher the marginal tax rate, the more appealing and advantageous the tax-free income becomes to the investor.”

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Just how powerful is this tax exemption? For a household earning $200,000 per year (married, filing jointly, taxed at 24%), a municipal bond yielding 4% has a tax-equivalent yield of 5.26%. That means a $100,000 investment in munis will generate roughly $1,260 more annually in passive income than they’d get with a 4% yield from, say, corporate bonds or stocks.

Here are nine municipal bond funds that provide exposure to this tax-free income. There’s something for every type of fund preference: mutual funds, exchange-traded funds (ETFs) and closed-end funds (CEFs).

SEE ALSO: The 7 Best Bond Funds for Retirement Savers in 2019

Data is as of April 8. Yields are SEC yields, which reflect the interest earned after deducting fund expenses for the most recent 30-day period and are a standard measure for bond and preferred-stock funds. Market value, yield and expenses provided by Morningstar.

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