Tax-exempt investments are financial products that allow investors to earn income without having to pay federal income taxes on that income. Common examples include municipal bonds, which are issued by state or local governments to fund public projects. The interest earned from these bonds is often exempt from federal taxes and, in some cases, state taxes as well. These investments can be attractive for individuals in higher tax brackets, as they can provide a better after-tax return compared to taxable investments. However, it's important to consider factors like credit risk and market fluctuations when investing in tax-exempt options.