From 24/7 Wall St. · Ryne Mauck · · 1m
MUB ETF Tax Trap for New York Retirees
New York retirees in MUB ETF face state tax on out-of-state bond interest despite tax-free claims.
In brief
New York retirees in MUB ETF face state tax on out-of-state bond interest despite tax-free claims. New York law taxes interest from non-New York municipal bonds, costing retirees up to $9,813 annually. Originally reported by 24/7 Wall St..
MUB ETF Tax Trap
New York retirees assume MUB ETF income is tax-free but state law taxes out-of-state bond interest.
“Only 19.55% of MUB Is New York Bonds. New York Doesn’t Exempt Interest From the Rest”
State Tax Rule
N.Y. Tax Law § 612(b)(1) requires adding back interest from other states to federal adjusted gross income.
Tax Impact
Retirees with $300,000 in MUB earn $9,813 annually but pay New York tax on 80.45% of that income.
Tax Report Method
iShares reports tax-exempt interest by state; New York at 22.73% of MUB’s tax-exempt income.
Tax-Equivalent Yield
MUB’s 5.64% tax-equivalent yield overstates after-tax benefit for New York residents.
Alternative Funds
VTEB tracks national exposure with 17.85% growth vs MUB’s 17.19% over 10 years.
Tax Strategy
New York residents should check MUB’s tax report and match it against Form 1099-DIV Box 12.
The big picture
New York law taxes interest from non-New York municipal bonds, costing retirees up to $9,813 annually.
