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Municipal money market not such a good deal right now

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  • Municipal money market not such a good deal right now

    Was looking at yields tonight and saw that the Vanguard municipal money market fund was only yielding 1.35% while the Prime MMF was yielding 2.31%. The problem is the highest tax bracket is 37%, and 2.31% * 63% = 1.45%. It isn't usually the case that an investor in the highest bracket can get a higher after-tax yield in a taxable MMF than in a tax-exempt one. Not sure I want to spend much effort chasing 10 basis points, but it's interesting.
    Helping those who wear the white coat get a fair shake on Wall Street since 2011

  • #2
    After state taxes and NIIT, most in the 37% bracket are still better off with municipal money market.

    Edit:  nevermind, state tax should apply to both.  But NIIT I think it would make it about a wash?

    I moved to Wealthfront for now.  We'll see how long their 2.57% rate lasts.

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    • #3
      yeah...something to pay attention to...but you're right, probably not actionable yet!

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      • #4
        VMMXX needs to be reduced by federal+state+NIIT. Muni needs to be reduced by (% out of state munis x marginal state tax). I think the yields are closer than 10 bp, especially with the state and NIIT tacked on to the federal rate.

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        • #5
          Whoa whoa whoa whoa whoa!

          Interest bearing accounts are hit by NIIT too?  I thought when you are paying at your income tax rate that would be high enough.  I thought NIIT only was applied to LTCG.  Learn something new every day.

           

          https://youtu.be/UKfceBq-j9Y

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          • #6




            Whoa whoa whoa whoa whoa!

            Interest bearing accounts are hit by NIIT too?  I thought when you are paying at your income tax rate that would be high enough.  I thought NIIT only was applied to LTCG.  Learn something new every day.

             


            Click to expand...


            I think it’s cute that you thought NIIT wouldn’t apply to interest bearing accounts.  

            thanks for the laugh.

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            • #7




              Was looking at yields tonight and saw that the Vanguard municipal money market fund was only yielding 1.35% while the Prime MMF was yielding 2.31%. The problem is the highest tax bracket is 37%, and 2.31% * 63% = 1.45%. It isn’t usually the case that an investor in the highest bracket can get a higher after-tax yield in a taxable MMF than in a tax-exempt one. Not sure I want to spend much effort chasing 10 basis points, but it’s interesting.
              Click to expand...


              Yeah, weird how short term is rising so much lately despite a .25 cut looming.  Those 2+% are going to evaporate end of the month IMHO.

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              • #8
                I would really laugh if wealthfront cut their rate and everyone who piled in piles out

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                • #9
                  VWSUX short term tax exempt admiral yields 1.62% but of course comes with a little bit of price fluctuation

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                  • #10







                    Whoa whoa whoa whoa whoa!

                    Interest bearing accounts are hit by NIIT too?  I thought when you are paying at your income tax rate that would be high enough.  I thought NIIT only was applied to LTCG.  Learn something new every day.

                     


                    Click to expand…


                    I think it’s cute that you thought NIIT wouldn’t apply to interest bearing accounts.

                    thanks for the laugh.
                    Click to expand...


                    Yeah I guess I never thought about it before.

                    This is why I hang around here.  You don't know what you don't know.

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                    • #11




                      I would really laugh if wealthfront cut their rate and everyone who piled in piles out
                      Click to expand...


                      Maybe makes the case for getting into CDs for some of your cash- since the rates are fixed for sometime at least

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                      • #12


                        Maybe makes the case for getting into CDs for some of your cash
                        Click to expand...


                        it does not.

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                        • #13
                          I moved my cash stash to VUSXX (treasury money market), which is exempt from state tax for most.

                          $50k to open, but they don't make you maintain that as a minimum balance, and it's yielding 2.18%. In a high-tax state (like MN with a marginal rate of 9.85%), it's a pretty good deal.

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                          • #14





                            Maybe makes the case for getting into CDs for some of your cash 
                            Click to expand…


                            it does not.
                            Click to expand...


                            Trying to learn here, why is that?

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                            • #15








                              Maybe makes the case for getting into CDs for some of your cash 
                              Click to expand…


                              it does not.
                              Click to expand…


                              Trying to learn here, why is that?
                              Click to expand...


                              less liquidity in CDs.  If you don't need liquidity then sounds reasonable to me.

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