Tax-free, on a level field

Municipal bonds vs. a payment stream

Municipal bonds pay tax-free interest, so a 3.5 percent muni is worth more than 3.5 percent to a high-bracket investor. The fair comparison is tax-equivalent yield. Here is how a tax-free muni stacks up against a higher-yielding payment stream once you adjust for your bracket, and which one belongs in a taxable account versus an IRA.

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Tax-equivalent yield

What a tax-free muni is really worth to you

A muni yielding about 3.59 percent, roughly 80 percent of the 4.49% 10-year Treasury, is worth more after tax as your bracket rises. This is its tax-equivalent yield: what a taxable bond would have to pay to match it.

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Your federal bracket	Tax-equivalent yield	Our payment stream
24%	4.73%	up to 8.50%
32%	5.28%	up to 8.50%
35%	5.53%	up to 8.50%
37%	5.70%	up to 8.50%
37% + 3.8% NIIT	6.07%	up to 8.50%

Muni yield is an approximation, about 80% of the 10-yr Treasury as of July 2, 2026 (the typical high-grade muni-to-Treasury ratio), not a live muni quote. State income tax on in-state bonds would raise the tax-equivalent yield further. Not tax advice.

The honest read

It comes down to the account

Read the table across, not down. At the top bracket, a high-grade muni's tax-equivalent yield lands near 6.1 percent, competitive with an investment-grade corporate bond and above a Treasury after tax. For a high earner holding money in a taxable account, that is a genuinely strong result, and munis stay liquid and government-backed while they do it. We are not going to pretend otherwise.

Where it flips is the account. Inside an IRA, a muni's tax exemption earns you nothing, because the account is already sheltered, so you would be giving up yield for a benefit you cannot use. That is exactly where a payment stream fits: its higher pre-tax estimated yield, up to 8.50%, compounds inside the shelter, while the muni's advantage sits idle. The clean rule most investors land on is to hold munis in the taxable account and higher-yielding assets like payment streams in the IRA. Our self-directed IRA guide walks through how that works.

The other honest differences: a muni is a government obligation, liquid and diversified in a fund, while a payment stream is one insurer's obligation with limited liquidity. And a muni's interest is federally tax-free, while most other fixed income is not, which is why account location matters. How a payment stream is taxed to you specifically is a question for your own tax advisor, not something we advise on. See where the stream sits against the rest of fixed income on our fixed income alternatives ladder. None of this is tax advice; your bracket and state make the call, so confirm it with your own advisor.

Municipal bond questions, answered straight

What is tax-equivalent yield?

Tax-equivalent yield is the pre-tax yield a taxable bond would need to match a tax-free municipal bond after taxes. The formula is the muni yield divided by one minus your marginal tax rate. A 3.5 percent muni for an investor in the 37 percent bracket has a tax-equivalent yield of about 5.6 percent, because 3.5 divided by 0.63 equals 5.56. State income tax on in-state bonds raises it further. It is the only fair way to compare a tax-free bond to a taxable one.

Are municipal bonds a good investment?

For a high-bracket investor holding money in a taxable account, municipal bonds are often a strong fit, because their tax-free interest can beat a taxable bond of similar credit once you adjust for taxes. They are a weaker fit inside an IRA, where the tax exemption is wasted, or for lower-bracket investors who benefit less from it. Credit quality is generally high, since the issuers are state and local governments, and they stay liquid.

Are municipal bonds better than a payment stream?

It depends on the account and your bracket. In a taxable account, a high-bracket investor should weigh a muni's tax-equivalent yield seriously; it can rival a payment stream after tax. In an IRA, where tax-free interest earns you nothing extra, a payment stream's higher pre-tax yield usually wins. The other differences: munis are liquid and government-backed but lower-yielding pre-tax, while a payment stream yields more pre-tax with limited liquidity and single-carrier insurer credit.

How should I compare a tax-free muni to a payment stream?

On a tax-equivalent basis. A municipal bond's interest is generally exempt from federal income tax, while most other fixed income is not, so you convert the muni's tax-free yield to its pre-tax equivalent for a fair comparison. How a payment stream's income is taxed to you specifically depends on your circumstances, and it is not something we advise on. Confirm your situation with your own tax advisor, and reach our team at (800) 449-6311 with questions about a listing.

PSA does not provide tax advice; consult your tax advisor or IRA custodian.

What these assets are, and what they are not

Guaranteed and life-contingent structured settlement payment rights, and lottery payment rights, represent the right to receive factored payments that Pacific Structured Assets purchases and assigns to investors through a court-approved process. They are purchased at a discount to their total scheduled payments.

These payment rights are NOT annuities, NOT insurance products, and NOT securities registered with the U.S. Securities and Exchange Commission. They are not bank deposits, are not FDIC-insured, and are not protected by any state insurance guaranty association. The industry term “secondary market annuity” refers to these payment rights and does not mean you are purchasing an insurance annuity contract.

You acquire the right to receive the payments, not the underlying annuity. The annuity itself does not change hands. Unlike the original structured settlement annuity, which may be shielded from creditors under applicable law, the assigned payment rights you purchase generally do not carry that creditor or bankruptcy protection.

Assigned annuities, offered as a separate product line, are existing insurance annuity contracts reassigned to a new owner through a change of ownership or an irrevocable change of payee.

These are long-term holdings with limited liquidity, and may not be suitable for every investor. There is no public trading market and no daily price. Resale or reassignment of a payment stream to another buyer may be possible, and Pacific Structured Assets can assist, but a resale is not guaranteed and the price it would bring is not guaranteed. Because the payments are fixed, that resale value moves with prevailing interest rates: an investor could realize a gain if rates have fallen since purchase, or a loss if rates have risen. These holdings are best suited to capital an investor can commit for the long term. Nothing on this website is tax, legal, financial, or investment advice. Consult your own advisors before investing.

Pacific Structured Assets, Inc. does not provide tax, legal, financial or accounting advice. The material on this website has been prepared for informational purposes only and is not intended to provide, and should not be relied on for, tax, legal, financial or accounting advice. You should consult your own tax, legal, financial or accounting advisors before engaging in any transaction, including the acquisition of factored structured settlement payments. Pacific Structured Assets is not registered with the Securities and Exchange Commission and is not licensed to sell insurance in any state.

Pacific Structured Assets

Hold munis in taxable, higher yield in your IRA.

Every offering is public: carrier, price, schedule, and estimated yield. Full payment schedules and available pricing come with a free account.

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