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Bond ETFs may cost retirees thousands yearly due to tax inefficiency, despite low fees and diversification.

Market News
03 Jun 2026
24/7 Wall Street
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Many retirees invest in broad bond ETFs like Vanguard's BND for safety and diversification but face significant tax inefficiencies that reduce after-tax returns by over a third. This happens because interest from corporate bonds in these ETFs is taxed as ordinary income. A better option for retirees in taxable accounts is municipal bond ETFs like Vanguard's VTEB, which offer tax-exempt income and comparable after-tax yields, making them more suitable for retirement income portfolios.

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