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Municipal money market not such a good deal right now

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  • The White Coat Investor The White Coat Investor 
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    Joined: 05/13/2011

    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.

    Site/Forum Owner, Emergency Physician, Blogger, and author of The White Coat Investor: A Doctor's Guide to Personal Finance and Investing
    Helping Those Who Wear The White Coat Get A "Fair Shake" on Wall Street since 2011

    #229701 Reply
    Lithium Lithium 
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    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.

    #229702 Reply
    Avatar G 
    Participant
    Status: Physician, Small Business Owner
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    Joined: 01/08/2016

    yeah…something to pay attention to…but you’re right, probably not actionable yet!

    #229704 Reply
    ENT Doc ENT Doc 
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    Status: Physician
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    Joined: 01/14/2017

    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.

    #229725 Reply
    Liked by Peds
    Lordosis Lordosis 
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    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.

     

    “Never let your sense of morals prevent you from doing what is right.”

    #229733 Reply
    q-school q-school 
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    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.

    #229751 Reply
    Avatar StarTrekDoc 
    Participant
    Status: Physician
    Posts: 2144
    Joined: 01/15/2017

    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.

    #229768 Reply
    Avatar Peds 
    Moderator
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    I would really laugh if wealthfront cut their rate and everyone who piled in piles out

    #229771 Reply
    Avatar jacoavlu 
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    Joined: 03/01/2018

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

    The Finance Buff's solo 401k contribution spreadsheet: https://goo.gl/6cZKVA

    #229773 Reply
    Lordosis Lordosis 
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    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.

    “Never let your sense of morals prevent you from doing what is right.”

    #229775 Reply
    Avatar Physician Finance Basics 
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    Joined: 06/02/2019

    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

    Blogging and videocasting about the basics of personal finance at http://physicianfinancebasics.com

    #229777 Reply
    Avatar Peds 
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    Maybe makes the case for getting into CDs for some of your cash

    Click to expand…

    it does not.

    #229779 Reply
    Liked by ZZZ, Vagabond MD
    PhysicianOnFIRE PhysicianOnFIRE 
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    Joined: 01/08/2016

    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.

    40-something anesthesiologist and personal finance blogger @ https://physicianonfire.com [Part of the WCI Network] Find me on Twitter: @physicianonfire

    FIRE. Financial Independence. Retire Early.

    #229783 Reply
    Avatar Physician Finance Basics 
    Participant
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    Joined: 06/02/2019
    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?

    Blogging and videocasting about the basics of personal finance at http://physicianfinancebasics.com

    #229784 Reply
    triad triad 
    Participant
    Status: Dentist, Small Business Owner
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    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.

    #229807 Reply

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