high yield or high tax

By: Kyle Hurley, Private Wealth Advisor with Munroe Morrow Wealth Management

 

While seeing a 3% or 4% yield on cash in a High-Yield Savings Account (HYSA) feels like a win, for those in the highest tax brackets, the payoff is often an illusion.

 

If you are a California resident in the top bracket, you are likely losing over half of your interest earnings before you ever see them.

 

The Tax Math: Why 3.25% Isn’t Always 3.25%

We recently analyzed a real-world scenario for a client with $1,000,000 parked in a popular high-yield account versus a diversified Municipal Bond strategy.

 

High Yield Savings vs Municipal Bonds

 

The $13,699 Difference

 

Wealthfront HYSA (3.25%): After Federal (40.8%) and CA State (12.3%) taxes, the net take-home pay was $15,242.

Municipal Bonds (3.30%): Because these are often federally tax-exempt, the net take-home was $28,941.

To match the after-tax return of that Municipal Bond, a taxable savings account would need to pay you roughly 6.00%.

 

Moving Beyond Interest: Three Ways to Optimize for 2026

As we look toward the 2026 tax landscape, UHNW individuals and business owners should be looking past simple interest rates and toward structural efficiency.

The “Qualified Dividend” Pivot

Not all dividends are created equal. Ordinary dividends are taxed at your top income rate (up to 40.8%). However, Qualified Dividends are taxed at the long-term capital gains rate (23.8% including NIIT). Shifting allocations into tax-efficient stock funds keeps significantly more growth in your pocket.

Why ETFs Beat Mutual Funds

Mutual Funds will surprise investors with capital gains distributions at the end of the year—an “unwanted holiday gift” that triggers a tax bill even if you didn’t sell a single share. ETFs are structured to be more tax-efficient, largely avoiding these forced distributions.

Strategic Tax-Loss Harvesting

Volatility is an opportunity for the savvy investor. Tax-loss harvesting allows us to sell positions at a loss to offset gains elsewhere or even offset up to $3,000 of ordinary income. It is the ultimate silver lining for a fluctuating market.

 

In the current market, chasing the highest “sticker price” yield can be a massive strategic error. It’s not about what you make; it’s about what you keep.

 

Are you holding significant cash reserves or preparing for a liquidity event? Don’t let taxes erode your hard-earned gains. Schedule a Conversation

 

Disciplined Investment Management

Munroe Morrow Wealth Management specializes in sophisticated tax coordination and portfolio architecture for high-net-worth and ultra-high-net-worth individuals and families. Our approach moves beyond simple investment management to focus on structural efficiency. We provide disciplined investment management to help you keep more of what you earn.