Worried About Taxes in Retirement? Here's 1 Investment Worth Looking At.

One big myth about retirement is that seniors don't have to worry about taxes. In reality, a number of your main retirement income streams may be taxable.

Social Security benefits can be subject to taxes. And if you have your savings in a traditional IRA or 401(k), withdrawals from your retirement plan are taxable, too.

If you're looking for a way to generate retirement income without adding to your tax burden, here's one investment worth looking at.

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It pays to consider municipal bonds

Municipal bonds are bonds issued by cities, states, and other localities to raise money for public projects. The nice thing about them is that they can serve as a steady income stream, paying you interest twice a year.

Just as importantly, municipal bonds are always exempt from taxes at the federal level as far as interest payments go. And if you buy municipal bonds issued by the state you live in, you can avoid state and local taxes on your interest payments, too.

To be clear, gains on municipal bonds are not tax-free. If you sell your bonds at a profit, you'll be subject to short- or long-term capital gains taxes, depending on how long you held your bonds prior to selling them.

But the regular interest payments you get from municipal bonds may be totally tax-free for you, depending on the specific bonds you buy. So if you're worried about taxes in retirement, this is one investment worth looking into.

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