Jun 06, 2013: We were thinking of adding tax exempt investments (like MUNIs) to our portfolio. In the process we needed to figure out the tax equivalent yield of these investments. We cannot compare the returns from a tax exempt investment with that of a taxable one without accounting for our tax savings.To calculate the yield on a taxable investment that's equivalent to the yield on a tax-exempt investment we found the following useful calculators:
- Morgan Stanley - Taxable Equivalent Yield Calculator - This one is particularly designed for those of us planning to invest in MUNIs. This simple calculator helps us to compare what a taxable investment would have to yield to match the tax-exempt returns offered by municipal bonds. To use it, we need to enter our tax free yield, tax bracket and the state in which we live.
- Bankrate.com - Tax Equivalent Yield Calculator - This is a visually pleasing tax equivalent yield calculator that will estimate the tax-equivalent yield (TEY) for a municipal bond. It has added some extra flavors like what TEY we would need if our tax exempt investment has only federal tax exemption or both federal and state tax exemptions. Bankrate has also provided a useful chart for Filing Status and Income Tax Rates for 2010.
- Vanguard's Taxable Equivalent Yield Calculator - To get the taxable equivalent yield, we need to enter the tax exempt yield and our current tax bracket. We can also calculate a taxable-equivalent yield based on a specific Vanguard® fund.
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