3) how do you know whether to choose a tax-free or taxable.any simple determination?Quick answer: If you're in the 38.6% tax bracket, go with the tax-free. Otherwise, don't.Longer answer: You need to compare the after-tax return from a taxable fund to the return from a comparabe tax-free fund. A simplistic way to do this is to multiply the return from the taxable fund by 1 minus your tax bracket. It gets more complicated if the fund is also state tax free and if you're itemizing your deductions.I've found that it's not unusual to look at the offerings from a single fund family and find that after taxes the returns are all within a few hundredths of a percent of each other if you assume the highest marginal tax rates. I take that as evidence that: 1) arbitrage is at work, and 2) tax-free investing is for taxpayers in the highest marginal brackets.--Peter
Best Of |
Favorites & Replies |
Start a New Board |
My Fool |
BATS data provided in real-time. NYSE, NASDAQ and NYSEMKT data delayed 15 minutes.
Real-Time prices provided by BATS. Market data provided by Interactive Data.
Company fundamental data provided by Morningstar. Earnings Estimates, Analyst Ra