Finance Maxxing
Fixed Income & Bonds
Treasury Bonds
State tax-exempt, federally taxable.
U.S. Treasury securities are exempt from state and local income tax but fully subject to federal tax.
Treasury Security Types
| Type | Maturity | Interest | State Tax |
|---|---|---|---|
| T-Bills | 4 weeks – 1 year | Discount (no coupon) | Exempt |
| T-Notes | 2 – 10 years | Semiannual coupon | Exempt |
| T-Bonds | 20 – 30 years | Semiannual coupon | Exempt |
| TIPS | 5, 10, 30 years | Inflation-adjusted | Exempt |
| I-Bonds | Up to 30 years | Inflation-adjusted | Exempt |
State Tax Advantage
For someone in a 10% state tax bracket, a 4.5% Treasury yield is equivalent to:
4.5% ÷ (1 − 0.10) = 5.0% fully-taxable equivalent
This makes Treasuries particularly attractive in high-state-tax states like CA, NY, and NJ.
Sources
Related Terms
More in Fixed Income & Bonds
Municipal Bonds
Interest is federal tax-exempt; may also be state/local exempt.
TIPS
Treasury Inflation-Protected Securities — state tax-exempt.
I-Bonds (Series I Savings Bonds)
State tax-exempt, tax-deferred until redemption.
Tax-Equivalent Yield
The taxable yield needed to match a tax-exempt bond after taxes.