Should You Buy Tax-Free or Taxable Bonds?
Generally speaking, all ERISA accounts like IRAs, Pension and Profit Sharing accounts, and other retirement accounts should invest in taxable bonds. Also, individuals who are in a tax bracket below about 25% should invest in taxable bonds as there is no additional tax advantage beyond what is already offered in these accounts. Almost always, the amount of interest you get to keep after paying taxes is more than you would receive from tax-free bonds.
If you have entered the 25% tax bracket or higher, tax-free bonds may be appropriate for you in your non-ERISA accounts. However, be sure you are using taxable bond income for your earnings up to the threshold of that 25% bracket.
Click here for an outline of which bonds are Taxable or Tax-Free