Quick answer
Where should high earners invest for income?
High earners should compare income investments on after-tax yield. In the top federal bracket, interest is taxed at up to 40.8% (37% plus 3.8% NIIT), qualified dividends at 23.8%, and most municipal bond interest at 0%. That usually favors munis for safe income in taxable accounts, keeps taxable bonds and private credit in IRAs, and makes the account location as important as the investment.
Key takeaways
- 01Top federal rates: 40.8% on interest, 23.8% on qualified dividends.
- 02In-state munis are often the best safe after-tax yield in taxable accounts.
- 03Put interest-heavy assets like private credit in tax-deferred accounts.
- 04Selling appreciated stock to buy income assets costs capital gains tax first.
| Top rate on interest | 40.8% (37% + 3.8% NIIT) |
|---|---|
| Top rate on qualified dividends | 23.8% |
| Muni interest | 0% federal, no NIIT |
| 37% bracket starts (2026 MFJ) | Above $768,700 |
| NIIT threshold (MFJ) | $250,000 MAGI, not indexed |
| In-kind §721 | $0 tax at contribution |
The Short Answer
Where should high earners invest for income?
High earners should compare income investments on after-tax yield. In the top federal bracket, interest is taxed at up to 40.8% (37% plus 3.8% NIIT), qualified dividends at 23.8%, and most municipal bond interest at 0%. That usually favors munis for safe income in taxable accounts, keeps taxable bonds and private credit in IRAs, and makes the account location as important as the investment.
Many high earners also hold a large appreciated stock position. Selling it to fund income investments triggers capital gains tax first, so strategies that create income from the position itself, without a sale, belong in the comparison.
The Tax Rates
How is investment income taxed for high earners?
| Income type | Top federal rate (2026) | Notes |
|---|---|---|
| Bond and loan interest | 37% + 3.8% NIIT = 40.8% | 37% applies above $768,700 taxable income (MFJ) |
| Non-qualified / BDC dividends | 40.8% | Most private credit fund distributions |
| Qualified dividends | 20% + 3.8% = 23.8% | 20% applies above $613,700 (MFJ) |
| Long-term capital gains | 23.8% | Same brackets as qualified dividends |
| Municipal bond interest | 0% | No NIIT; may be state-exempt in-state |
| Treasury interest | 40.8% federal | Exempt from state tax |
After-Tax Yields
Which income investments pay the most after tax?
Chart
After-tax yield at the top federal rate (illustrative pre-tax yields)
With these illustrative yields, a 3.5% muni beats a 4.3% Treasury after federal tax, and private credit's higher pre-tax yield shrinks by 40.8% in a taxable account. Your own state's tax, the bonds' credit quality and your liquidity needs change the ranking.
Asset Location
Which accounts should hold which income assets?
Taxable brokerage
Munis, qualified-dividend stocks, index funds, and assets with long-term gains.
Traditional IRA / 401(k)
Taxable bonds, private credit funds, REITs and high-turnover strategies.
Roth
The assets with the highest expected long-term growth.
Concentrated stock
Plan it separately; selling it triggers gains no matter which account the proceeds go to.
Where Embark fits
Selling appreciated stock to buy income assets costs up to 23.8% first. What could the stock target in income itself?
Run your ticker to see the income target with $0 tax at contribution.
- Starts with appreciated stock you already own instead of new cash for a credit fund
- §721 in-kind contribution: $0 tax at contribution, no sale to fund the allocation
- Targets 10%+ annual income; a target, not a guarantee, with a 3-year lock-up
Run the numbers
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Your Numbers
What is your after-tax yield?
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After-tax yield
Enter a pre-tax yield and the rate that applies to that type of income.
After-tax yield
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After-tax income per year
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Taxable yield needed to match a 3.5% muni
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The Stock Problem
What if most of your wealth is one stock?
For many tech employees and founders, the largest asset is appreciated company stock. Selling $2M of stock with a $200K basis at a 23.8% federal rate costs about $428,000 before state tax, leaving roughly $1.57M to invest for income. See the cost of selling appreciated stock.
Embark accepts the shares in kind under §721, with $0 tax at contribution, and targets 10%+ annual income from the position. That income is taxable when paid. Target, not guarantee; 3-year lock-up; accredited investors only.
FAQ
Frequently asked questions
What is the best tax-free income investment?
For most high earners, in-state municipal bonds; Roth accounts also produce tax-free income if qualified.
Do high earners pay NIIT on dividends?
Yes, above $250,000 of MAGI for joint filers and $200,000 for single filers.
Should high earners own private credit?
If they do, holding it in a tax-deferred account avoids paying up to 40.8% on its interest each year.
Are qualified dividends taxed less than interest?
Yes: up to 23.8% versus up to 40.8% for interest at the top federal rate.
Is it worth selling appreciated stock to buy income investments?
Only after counting the capital gains tax, which reduces the amount you can invest.
What is asset location?
Putting each investment in the account type where its income is taxed least.
Sources
Primary sources
Sources
- IRS Revenue Procedure 2025-32: 2026 tax brackets
- 26 U.S. Code §1411: Net investment income tax
- 26 U.S. Code §103: Interest on state and local bonds
- 31 U.S. Code §3124: Exemption of US obligations from state and local taxation
- 26 U.S. Code §852: Taxation of regulated investment companies and their shareholders
- 26 U.S. Code §721: Nonrecognition on contribution to a partnership
Cite this article
Embark Funds Research. “Where High Earners Invest for Income Ranked After Tax.” Embark Funds, updated October 29, 2026. https://www.embarkfunds.com/insights/where-to-invest-income-high-earners
Not tax, legal or investment advice: This article is educational and is not tax, legal, investment or Medicare advice. Rules and dollar amounts change every year and depend on your facts. Work with a CPA or financial planner before acting. Embark income figures are targets, not guarantees. Contributed shares have a 3-year lock-up, and Embark is open to accredited investors only.
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High-Earner Income
Start From the Stock You Already Own
Contribute appreciated stock to Embark's SPV with $0 tax at contribution and target 10%+ annual income. 3-year lock-up; accredited investors.