High-Tax Earners Can Lock In Near 10% Risk-Free Yields
Certain tax-advantaged instruments are offering yields approaching 10% for high earners in high-tax states, making them unusually attractive right now.
For investors in the highest income brackets — particularly those living in states and cities with steep tax burdens — a class of low-risk fixed-income instruments is currently offering effective yields approaching 10% on an after-tax basis, according to a MarketWatch analysis.
The appeal lies in the tax math. Nominal yields on certain government-backed or tax-exempt securities may appear modest at first glance, but when federal, state, and local tax obligations are stripped away, the real return for top earners can dramatically outpace what taxable alternatives deliver at comparable risk levels.
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This dynamic is especially relevant in high-tax jurisdictions such as California, New York, and New Jersey, where combined marginal rates for top earners can exceed 50%. In those environments, the after-tax equivalent yield on tax-exempt instruments becomes significantly more competitive against corporate bonds, certificates of deposit, and even some equity dividend strategies.
For investors who are not in top tax brackets, the calculus looks very different. The benefit of tax-exempt status diminishes sharply as an investor's marginal rate falls, meaning lower- and middle-income savers would likely find taxable high-yield alternatives more rewarding on a net basis.
Financial advisers generally recommend that investors calculate their individual tax-equivalent yield before rotating into these instruments, as personal circumstances — including alternative minimum tax exposure and state residency — can substantially alter the effective return. Continue reading at MarketWatch.com
