Tax-Equivalent Yield Calculator

It's the pre-tax yield a taxable investment would need to equal the after-tax return of a tax-free one. Because municipal bond interest is often exempt from federal (and sometimes state) tax, a 3.5% muni can be worth more than a 4.5% taxable bond to a high earner. The formula reveals the true comparison.

Divide the tax-free yield by (1 − your marginal tax rate). A 3.5% muni for someone in the 32% bracket is 3.5% ÷ (1 − 0.32) = 5.15%. That means a taxable bond would need to yield more than 5.15% to beat the muni after taxes — a meaningful edge for higher brackets.

Higher earners in top tax brackets, because the tax exemption is worth more the higher your rate. For someone in a low bracket, the tax break is small and taxable bonds (with their higher stated yields) often win. Munis also shine in taxable brokerage accounts, not tax-sheltered ones like IRAs.

Generally no. Retirement accounts are already tax-sheltered, so the muni's tax exemption is wasted there — you'd give up yield for a tax break you don't need. Hold munis in taxable accounts and put higher-yielding taxable bonds inside tax-advantaged accounts (a strategy called asset location).