How a $500K Schwab Muni ETF Position Yields $6,500 Tax-Free Annually

As tax season approaches, investors seek ways to maximize after-tax income. One attractive option is the Schwab Municipal Bond ETF, which offers federally tax-exempt income. According to a report from 24/7 Wall St., a married couple in the 32% tax bracket can earn an extra $6,500 in after-tax income annually by investing $500,000 in this fund.

Details

The Schwab Municipal Bond ETF (ticker: ???) invests in municipal bonds exempt from federal taxes. The fund's current yield is approximately 1.3%, meaning a $500,000 investment generates about $6,500 in annual income. Since this income is tax-free at the federal level, it remains fully available to investors in high tax brackets.

Context

In 2021, Elon Musk paid over $11 billion to the IRS, and his 2026 tax bill may be larger due to the SpaceX IPO. The top tax bracket is 37%, plus a 3.8% Net Investment Income Tax (NIIT), resulting in an effective rate of 40.8%. For couples in the 32% bracket, any additional income would be subject to these taxes, making tax-exempt income more valuable.

What This Means for Investors

For high-bracket investors, municipal bond ETFs can be an effective tool to boost after-tax income. However, risks such as credit risk and interest rate risk should be considered. It is advisable to consult a tax advisor to assess suitability.