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Tax-free Income: Considerable Advantages

 
The Benefits of Investing in Tax-free Funds

Municipal bond funds can be highly effective components of an investment portfolio.  Among the most attractive features are the funds’ capacity to generate income that is tax-free—often at the federal, state and local level—and their ability to help transform communities near and far. Read more about these benefits. 

 

How Tax-free Income Measures Up to Taxable Yield

As the calculator below will demonstrate, a taxable investment typically needs a sizable bump in yield before it can match the after-tax advantages of tax-free municipal bond fund investing.  The competitive yields our investment team works to deliver look even more attractive because of their favorable tax status.

This is the yield a taxable investment would have to pay to match the tax-free muni bond fund yield shown above.

 

The tax rates and brackets used here are current but subject to change. Calculations factor in the 3.8% tax on unearned income under the Patient Protection and Affordable Care Act, as applicable, and assume that an investor’s highest tax bracket applies to the change in taxable income resulting from a switch between taxable and tax-free investments, that the investor is not subject to the alternative minimum tax and that state tax payments are fully deductible on the investor’s federal tax return. An investor’s actual tax rate may vary depending on the investor’s income, investments and deductions; in particular, state tax laws regarding municipal bond income can vary considerably for taxpayers in states not listed above. All investors are encouraged to consult a tax advisor regarding current tax legislation and how tax laws affect individual financial situations; these calculations are for illustrative purposes only and are not intended to show the specific performance of any fund.

Fixed-income investing entails credit and interest rate risks (when interest rates rise, bond/fund prices generally fall). A portion of a municipal bond fund’s distributions may be subject to tax and may increase taxes for investors subject to federal alternative minimum tax; however, income distributions from Rochester’s two AMT-free funds will not increase an investor’s exposure to AMT. Capital gains distributions are taxable as capital gains. 

Oppenheimer Rochester® municipal bond funds include below-investment-grade securities (“junk bonds”) that may be more at risk of default and subject to liquidity risk. Funds can maintain a relatively high portion of their portfolio holdings in particular segments of the municipal securities market, such as tobacco bonds or real-estate-related securities, that are prone to above-average price volatility. Funds may invest substantially in U.S. territories, commonwealths and possessions and could be exposed to their local economic and political conditions. State-specific muni bond funds may also invest in a limited number of issues within a single state, which can further increase volatility and exposure to regional developments. Fund holdings are subject to change.

Shares of Oppenheimer funds are not deposits or obligations of any bank, are not guaranteed by any bank, are not insured by the FDIC or any other agency, and involve investment risks, including the possible loss of the principal amount invested.

Before investing in any of the Oppenheimer funds, investors should carefully consider a fund's investment objectives, risks, charges and expenses. Fund prospectuses and summary prospectuses contain this and other information about the funds, and may be obtained by asking your financial advisor, visiting oppenheimerfunds.com, or calling 1.800.CALL OPP (225.5677). Read prospectuses and summary prospectuses carefully before investing.

Oppenheimer funds are distributed by OppenheimerFunds Distributor, Inc.
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