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Some investments generate taxable income, while others are nontaxable. For example, the interest income from many bonds is subject to tax. Dividends and interest from savings accounts or other investments also count as taxable income. Interest income on municipal bonds generally is exempt from federal and state income taxes with a few exceptions: Any capital gains distributed may be taxable; income received from muni investments may be subject to the Alternative Minimum Tax for some investors; and interest income from muni bonds is added back as part of your modified adjusted gross income when computing potential tax due on Social Security benefits on modified income of more than $25,000 for individual filers, $32,000 for joint filers.
Distributions from traditional 401(k) plans and traditional IRAs
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