Tax-equivalent yield, explained simply
Tax-equivalent yield answers one question: how much would a taxable investment have to pay to match a tax-free one, for you?
The formula
Tax-equivalent yield = tax-free yield ÷ (1 − your tax rate). For a bond that is free of federal tax only, use your federal rate; if it is also free of your state's tax, use the combined rate. Treasuries work the other way: they are taxed federally but not by your state.
Why it differs from person to person
Two people looking at the same bond can get different answers because their federal bracket and state tax differ. That is why one ranking can't fit everyone.
Let the list do the math
IncomeGrid has 40,000+ investment options screened. IncomeGrid ranks every item by yield after tax for where you live: federal, state and each investment type (Treasuries, municipal bonds, corporate bonds, funds, REITs and filed offerings are each taxed differently). Choose where you live and every yield is shown on the same after-tax basis.
Sources
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