What are the best Tax-exempted ETFs?
7 min read
By Beqa Bumbeishvili, ETF Insider

What are the best Tax-exempted ETFs?

The best Tax-Exempt ETFs are those that offer investors the opportunity to generate tax-free income, typically through investments in municipal bonds or other tax-advantaged assets. These ETFs are particularly attractive to investors in high tax brackets seeking to reduce their overall tax liability. Selecting the "best" Tax-Exempt ETF will depend on factors such as the ETF's yield, credit quality of its holdings, and the investor's individual tax situation. Thorough research and perhaps consultation with a tax advisor is advised when choosing the most appropriate Tax-Exempt ETF.

Tax-Exempt ETFs: Exploring the Benefits of Tax Efficiency

Tax-exempt ETFs are investment vehicles that provide investors with exposure to various asset classes while offering tax advantages. These ETFs are particularly attractive for investors seeking to minimize their tax liabilities. By investing in tax-exempt ETFs, individuals can potentially earn tax-free income or reduce their tax burdens compared to traditional investments. Let's take a closer look at some of the best tax-exempt ETFs available in the market today.

Comparing Municipal Bond ETFs: Vanguard Tax-Exempt Bond ETF (VTEB) vs. iShares National Muni Bond ETF (MUB)

One notable tax-exempt ETF is the Vanguard Tax-Exempt Bond ETF (VTEB). This ETF aims to provide investment results that correspond to the performance of the S&P National AMT-Free Municipal Bond Index. VTEB primarily invests in investment-grade municipal bonds issued by various states and local governments across the United States. The fund's focus on high-quality municipal bonds helps mitigate credit risk while providing tax-exempt income to investors.

Another popular tax-exempt ETF is the iShares National Muni Bond ETF (MUB). This ETF seeks to track the investment results of the S&P National AMT-Free Municipal Bond Index. MUB invests in a diversified portfolio of investment-grade municipal bonds issued by municipalities across the United States. Similar to VTEB, MUB aims to generate tax-exempt income for investors while providing exposure to the municipal bond market.

Both VTEB and MUB offer tax advantages by investing in municipal bonds, but there are some key differences between the two ETFs. VTEB has a slightly lower expense ratio compared to MUB, making it a cost-effective option for investors. On the other hand, MUB has a larger asset base and higher average daily trading volume, which may provide better liquidity for investors. It is essential to consider these factors along with individual investment goals and risk tolerance when choosing between the two ETFs.

Tax-exempted ETF,VTEB,MUB, overlap What are the best Tax-exempted ETFs?Tax-exempted ETF,VTEB,MUB, overlap What are the best Tax-exempted ETFs?

Tax-Exempt ETFs vs. Taxable ETFs: Which is Right for You?

Investors often face the decision of whether to invest in tax-exempt ETFs or taxable ETFs. Tax-exempt ETFs, such as municipal bond ETFs, offer tax advantages by providing income that is generally exempt from federal taxes. On the other hand, taxable ETFs invest in securities subject to taxation, such as stocks and corporate bonds. The choice between tax-exempt and taxable ETFs depends on various factors, including an individual's tax bracket, investment goals, and risk tolerance.

For individuals in higher tax brackets, tax-exempt ETFs may provide significant tax benefits. Investors in lower tax brackets or those seeking higher growth potential may prefer taxable ETFs, which offer exposure to a broader range of asset classes. It is essential to consult with a tax advisor or financial professional to assess your specific tax situation and determine the most suitable investment approach.

Tax-Exempt ETFs: Considerations and Risks

While tax-exempt ETFs offer attractive tax advantages, investors should be aware of certain considerations and risks. Firstly, tax-exempt ETFs are subject to interest rate risk, meaning their prices may decline when interest rates rise. Additionally, changes in the creditworthiness of the underlying municipal bonds can affect the performance of tax-exempt ETFs. It is crucial to carefully evaluate the credit quality and diversification of the holdings within these ETFs.

Investors should also consider the potential impact of changes in tax laws and regulations on tax-exempt ETFs. Tax policies can change over time, which may affect the tax advantages provided by these investments. Staying informed about tax legislation and seeking professional advice can help investors navigate any potential tax-related risks.


Tax-exempt ETFs can be an excellent addition to an investor's portfolio, providing tax-efficient income and potential capital appreciation. When considering tax-exempt ETFs, it is essential to evaluate factors such as expense ratios, asset size, liquidity, and the underlying holdings. By carefully analyzing these factors and aligning them with your investment goals and risk tolerance, you can make informed decisions when selecting the best tax-exempt ETFs for your portfolio.

Disclaimer: This article is for informational purposes only and does not constitute investment advice. It is not providing any investment advisory services. Investors should conduct thorough research and consult with a qualified financial advisor before making any investment decisions.


Vanguard Tax-Exempt Bond ETF (VTEB):
iShares National Muni Bond ETF (MUB):
Tax-Exempt Security:

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  • What are tax-exempted ETFs?

    Tax-exempted ETFs are exchange-traded funds that offer potential tax advantages to investors by investing in securities that generate tax-exempt income, such as municipal bonds.

  • What are municipal bonds?

    Municipal bonds are debt securities issued by state and local governments or their agencies to raise capital for public projects. The interest income from these bonds is often exempt from federal taxes and may also be exempt from state and local taxes, depending on the issuer and the investor's residence.

  • Which ETFs offer tax-exempted investments?

    Several ETFs focus on tax-exempt investments, including municipal bond ETFs. Some popular options include iShares National Muni Bond ETF (MUB), Vanguard Tax-Exempt Bond ETF (VTEB), SPDR Nuveen Bloomberg Barclays Municipal Bond ETF (TFI), and VanEck Vectors Municipal Allocation ETF (MAAX).

  • What are the advantages of investing in tax-exempted ETFs?

    Investing in tax-exempted ETFs can provide potential tax benefits, including the opportunity to earn tax-free income. These ETFs can be particularly attractive for investors in higher tax brackets who are seeking to reduce their tax liability.

  • Are tax-exempted ETFs suitable for all investors?

    While tax-exempted ETFs offer potential tax advantages, their suitability depends on individual circumstances. Investors should consider their tax bracket, investment goals, risk tolerance, and consult with a financial advisor or tax professional to determine if these ETFs align with their overall investment strategy.

  • How can I invest in tax-exempted ETFs?

    To invest in tax-exempted ETFs, you can follow these steps: