To reduce our taxable income, I've been keeping cash in a Municipal Money Market Fund. It pays less than taxable money markets, but keeps our taxable income below threshholds for tax benefits, such as deductions and credits. However, due to seasonality, the interest payments are very low in January, less than 1% in mid January. This caused me to look for Municipal Bond funds that pay higher interest, with some risk.
I found some high yield Municipal Bond Funds. I decided to go with PRFHX is the T. Rowe Price Tax-Free High Yield Fund. Dividends are around 4%, federal tax free, which is higher than my taxable money market interest I've been receiving.
Disclosure: I was not compensated by T. Rowe Price for this post. I have already purchased PRFHX for several of out taxable accounts.
This is not financial nor tax advice advice. Please consult a professional advisor.
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