Tax-Exempt Investment
TaxGlossary term
Definition
An investment whose earnings are not subject to federal or state income tax. Municipal bonds are the most common example, as their interest income is generally exempt from federal taxes and often from state taxes if you live in the issuing state.
Related terms
- Municipal BondA bond issued by a state, city, or county to fund public projects like schools, roads, and hospitals. Interest income is typically exempt from federal taxes and often from state taxes if you live in the issuing state, making them attractive to high-income investors.
- Tax-Deferred AccountAn investment account where taxes on contributions and earnings are postponed until money is withdrawn, typically in retirement. Examples include traditional IRAs and 401(k) plans, which allow investments to grow without annual tax drag.
- Tax BracketThe range of income subject to a certain income tax rate in the progressive US tax system. Higher income levels are taxed at higher rates (marginal tax rates).
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