There’s an easy way to weaken Uncle Sam’s grip on from your income stream; I’m talking about municipal bonds, or bonds issued by states, cities and counties to finance roads, bridges and other projects, explains Michael Foster, income expert and editor of Contrarian Outlook.

Why muni bonds? For one, they pay a steady dividend that’s entirely tax-free for most Americans, meaning you can keep 100% of your gains forever. Second, your muni income won’t bump you up into another tax bracket, another win that few folks pay much attention to.

The best way to buy munis is through closed-end funds (CEFs), because CEFs let us buy these bonds at big discounts while enhancing the tax-free dividends they hand us. With that, let’s dive into five cheap muni CEFs throwing off healthy income streams now.

Nuveen MI Quality Municipal Income Fund (NUM)

As the name suggests, Nuveen MI Quality Municipal Income focuses on bonds issued by the state of Michigan (or Michigan’s counties, cities and other state-level organizations).

NUM is a rare gem in that it has a tremendous track record (it’s up 8%, on average, per year over the last decade) and a 4.1% dividend stream. That’s way more than the 1.8% you’d get from average S&P 500 stock, and it doesn’t even include the effect of NUM’s tax-free status!

Amazingly, this one trades at a massive 13.6% discount to NAV as I write, though that deal is fading fast. With this narrowing discount, investors are bagging a big profit (for relatively stable investments like munis), with 7.3% total returns for 2019 already.

More gains loom as the tax-weary hordes swoop in over the next few weeks. Beat them to the punch and grab NUM now, while it’s still cheap.

DTF Tax-Free Income Fund (DTF)

Now let’s invest beyond Michigan with DTF Tax-Free. Its multi-state approach means it holds bonds from across the country, with its biggest holding at just 3% of its portfolio. And with a 12.3% discount, it’s similarly discounted to NUM.

The yield here is a bit smaller—just 3.2%—which is the price of this diversification. But DTF’s track record more than makes up for this: it’s returned over 80% in the last decade:

Although not all of those gains came in the form of tax-free dividends, DTF investors are up solidly over the long haul, and they’re getting paid tax-free income as their principal grows.

Delaware Investments National Municipal Income Fund (VFL)

If big income is what you crave, the 4.7% dividend on  Delaware Investments National Municipal Income is for you. Despite the name, VFL doesn’t invest in Delaware (that’s the name of the company managing the fund).

This is a multi-state muni CEF with no more than 2.3% of its assets in any one muni bond. Its 11.5% discount has been gradually slipping, after suddenly widening in February. That’s all thanks to price gains, as the fund’s shares are up 8.4% for 2019 — but there’s much more to come.

Why? Because VFL’s average discount to NAV over the last decade is just 8.5%, and with its income stream stronger than ever, there’s little reason for its current 11.5% discount to stick around. Plus, the fund’s 6.5% annualized return over the last decade proves it can cover its dividend and hand you some nice gains, as well.

Western Asset Intermediate Municipal Bond Fund (SBI)

Western Asset Intermediate boasts a 12.4% discount while handing you a nice 3.8% dividend stream. But its history is what really stands out. This fund goes back to the early 1990s, and its total return has been staggering over that time.

If you want an income stream but you don’t want the headache of worrying about when to sell a fund—or if the fund should ever be sold — SBI is a good choice. 

It has also been outperforming the benchmark iShares National Muni Bond ETF (MUB) since the ETF came out in 2007, indicating that its managers are no slouches. If you need a long-term income stream without tax headaches, take a close look at SBI.

BlackRock MuniYield CA Quality Fund (MCA)

Now let’s close out with another muni standout. The BlackRock MuniYield CA Quality Fund has crushed the market for a long time. Just compare its 10-year return with that of MUB. What’s more, its 4.6% yield crushes the crummy 2.4% the the benchmark iShares National Muni Bond ETF pays out.

Such outperformance deserves a premium, but MCA trades at an 12.0% discount to NAV, much lower than its 7% average discount over the last decade. That’s a clear indicator that you can grab some upside from MCA if you buy now, in addition to that nice tax-free income stream.

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