A new year means tax season is just around the corner. While it may be too late to really impact last year’s tax bill, 2025’s tax bill has just begun. Those who want to avoid as significant a tax impact as they saw in 2024 may want to prepare now by adjusting their portfolios. Fixed income, for one, offers both yield and opportunities to reduce tax burdens, with a tax-friendly ETF like TAXF a notable example.
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The American Century Diversified Municipal Bond ETF (TAXF ) launched in September 2018. The strategy, which charges 29 basis points, actively invests in investment-grade and high yield muni bonds. In doing so, the fund aims to boost income while reducing taxes. TAXF allocates up to 35% of its portfolio into riskier municipal bonds, as well, which can help it get that additional yield.
Munis Galore in Tax-Friendly ETF TAXF
The tax-friendly ETF provides exposure to tax-exempt debt securities via those muni bonds. Generally, municipal bonds are exempt from federal taxes, and in some cases exempt from state and local taxes. Government-issued, muni bonds are less prone to market volatility and offer fewer defaults compared to other bond areas, per American Century Investments.
Moving some fixed income assets into that space could help reduce a portfolio’s overall tax bill. TAXF can also offer performance and yield via those holdings. The tax-friendly ETF has returned 2% YTD, outperforming the S&P National AMT-Free Municipal Bond Index in that time, per American Century Investments data. In terms of yield, it offered a 3.5% 30-day SEC unsubsidized yield as of December 31.
Should the U.S. economy remain positive overall, avoiding a recession, muni bonds can continue to play a helpful role. Together, TAXF’s provision of tax reduction and yield can make it an appealing option to realign a fixed income allocation.
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