$500,000 in These 3 Tax Free Bond ETFs Pays $1,750 a Month for High Income Retirees

High-bracket retirees look a mathematics occupation that taxable enslaved funds cannot solve: each dollar of involvement income gets taxed astatine the national marginal rate, often layered with a authorities taxation bite. The iShares National Muni Bond ETF (NYSEARCA:MUB) sits astatine the halfway of a three-fund solution that turns astir $500,000 into astir $1,750 a period of federally tax-exempt income. Pair MUB with Vanguard Tax-Exempt Bond ETF (NYSEARCA:VTEB) and Invesco National AMT-Free Municipal Bond ETF (NYSEARCA:PZA) and the combined presumption generates astir $21,000 annually without adding to taxable income. For a California retiree successful the 32% national and 9.3% authorities brackets, that is equivalent to astir $35,000 of pre-tax taxable income.

What MUB and Its Peers Actually Do

Municipal enslaved ETFs clasp bonds issued by states, cities, schoolhouse districts, and authorities. Interest is exempt from national income taxation nether IRS Publication 550 and is often exempt from authorities taxation if the enslaved is issued successful the holder's location state. MUB tracks the wide investment-grade nationalist muni market. VTEB does astir the aforesaid happening astatine Vanguard. PZA layers successful a filter that excludes bonds whose involvement tin trigger the national Alternative Minimum Tax, making it cleaner for higher earners who occasionally brushwood against AMT.

The instrumentality motor is simple: monthly coupon income from thousands of underlying issuers, with humble terms question tied to involvement rates. MUB has paid betwixt $0.275 and $0.292 per stock each period implicit the past year. Current SEC yields tally astir 3.45% connected MUB, 3.54% connected VTEB, and 3.67% connected PZA.

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