Similarly, the «break - even» interest rate is lower for
investors in lower tax brackets.
That was because the net aftertax yield would be well above that of Treasuries even for
investors in lower tax brackets.
This is true for most
investors in the lower tax brackets.
For
investors in lower tax brackets, qualified dividends are sometimes not taxed at all.
The other side of that is that it may not make sense for
investors in lower tax brackets.
In today's low - rate environment, even
investors in the lowest tax bracket derive an income benefit from municipal bond tax - exemption.
An investor in a lower tax bracket with a long - time horizon may prefer to pay the fee outside the IRA.
Even
investors in the lowest tax brackets can benefit from tax - free investing.
Not exact matches
Although municipal bond yields are generally
lower than taxable bond fund yields, some
investors in higher
tax brackets may find they have a higher after -
tax yield from a
tax - free municipal bond fund investment instead of a taxable bond fund investment.
This means that dividend income will be
taxed at a
lower rate than the same amount of interest income (
investors in the highest
tax bracket pay
tax of around 25 % on dividends, compared to 50 % on interest income).
Because
tax - exempt interest generated by municipal bonds is usually more beneficial for
investors in higher
tax brackets, municipal bonds may not be appropriate for all
investors, particularly those
in lower tax brackets.
Therefore, higher - income
investors (with theoretically higher
tax bills) are likely to benefit more from municipal bond yields than individuals
in lower tax brackets.
Capital gains are not only
taxed at a
lower rate
in the highest
tax brackets, but
investors can also control when to take them — dividends, on the other hand, are taxable
in the year they're paid, even if you reinvest them.
This is great for
investors sitting
in the
lower tax brackets.
The
lower tax - free yields offered by muni bonds and
tax - exempt mutual funds are often more valuable to
investors in the top
tax brackets.
But, because I bonds continue earning for 30 years, most
investors can hold onto the bonds until they are
in a
lower tax bracket, and then redeem the bonds.
Unfortunately, most
investors will be
in lower federal and state
tax brackets upon retirement since they will lose their primary sources of income (wages, salaries, commissions, bonuses, tips, etc.).
Assuming, however, that our
investor will retire
in a
lower tax bracket — say, 30 % — the actual value of his RRSP would be $ 700,000 after accounting for
taxes.
This is to model the worst - case scenario, so detractors can't say, «Yeah that's the way those cookies crumble with
low tax rates, but for
investors in high
tax brackets, waiting as long as possible to claim PIA benefits is better.»
In so doing, they allow the
investor to pay
tax on that income at a much
lower tax bracket than would have been the case with ordinary earned income.