most tax efficient way to keep semi-liquid cash

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cds_001
Posts: 4
Joined: Sun Jul 16, 2017 11:03 am

most tax efficient way to keep semi-liquid cash

Postby cds_001 » Sun Jul 16, 2017 11:09 am

Hello all, I'm a big fan! I am looking for places to put 6 months emergency fund as well as a general purpose savings fund. I will have ~25% in liquid cash (savings account), but I need a low risk, tax efficient, and relatively easy place to access to put the rest, as I'd rather not pay taxes on interest I'm likely not taking advantage of year to year (mid-upper tier income bracket). How should I distribute the rest of this money? I bonds? Other places? Thanks so much for the advice!

Dude2
Posts: 599
Joined: Fri Jun 08, 2007 3:40 pm

Re: most tax efficient way to keep semi-liquid cash

Postby Dude2 » Sun Jul 16, 2017 12:36 pm

Well, you could try something like this:

https://www.bogleheads.org/wiki/Placing_cash_needs_in_a_tax-advantaged_account

IBonds are not available for cashing until 1 year has passed, so that may/may not be viable for your needs.

radiowave
Posts: 1170
Joined: Thu Apr 30, 2015 5:01 pm

Re: most tax efficient way to keep semi-liquid cash

Postby radiowave » Sun Jul 16, 2017 1:01 pm

Unfortunately the only way not to pay any taxes is to not accrue any interest or dividends. So if you put the money in a brick and mortar bank savings or money market account, say Wells Fargo, Chase, Bank of America, etc. the savings rate is so low you will collect a minimal amount of interest but it will be in an FDIC insured account up to $250K/individual. If you want safety but don't mind paying a little bit of taxes, then the Ally 11 mo no penalty CD at 1.50% savings rate will give you a little bit of cash above and beyond and will be likewise FDIC insured. You might consider a federal tax-exempt municipal bond fund, e.g. Vanguard VWITX but still have to pay state taxes (if applicable) on dividends.

amphora
Posts: 191
Joined: Fri Jun 26, 2015 10:44 pm

Re: most tax efficient way to keep semi-liquid cash

Postby amphora » Sun Jul 16, 2017 2:26 pm

radiowave wrote:Unfortunately the only way not to pay any taxes is to not accrue any interest or dividends. So if you put the money in a brick and mortar bank savings or money market account, say Wells Fargo, Chase, Bank of America, etc. the savings rate is so low you will collect a minimal amount of interest but it will be in an FDIC insured account up to $250K/individual. If you want safety but don't mind paying a little bit of taxes, then the Ally 11 mo no penalty CD at 1.50% savings rate will give you a little bit of cash above and beyond and will be likewise FDIC insured. You might consider a federal tax-exempt municipal bond fund, e.g. Vanguard VWITX but still have to pay state taxes (if applicable) on dividends.


Agree that tax exempt money market seems to be what you're looking for though depends on your tax bracket. That or a mattress :mrgreen:

jebmke
Posts: 6199
Joined: Thu Apr 05, 2007 2:44 pm

Re: most tax efficient way to keep semi-liquid cash

Postby jebmke » Sun Jul 16, 2017 2:31 pm

cds_001 wrote:but I need a low risk, tax efficient, and relatively easy place to access to put the rest,

Low risk is a vague term. Depending on how much risk you are willing to take, Limited Term or even Intermediate Term Tax Exempt Bond funds could be an option. I use both. They are both perfectly liquid. I can convert funds from either fund to cash in the bank in 2-3 business days.
When you discover that you are riding a dead horse, the best strategy is to dismount.

aristotelian
Posts: 2163
Joined: Wed Jan 11, 2017 8:05 pm

Re: most tax efficient way to keep semi-liquid cash

Postby aristotelian » Sun Jul 16, 2017 2:37 pm

jebmke wrote:Low risk is a vague term. Depending on how much risk you are willing to take, Limited Term or even Intermediate Term Tax Exempt Bond funds could be an option. I use both. They are both perfectly liquid. I can convert funds from either fund to cash in the bank in 2-3 business days.


+1 to this as well as I-Bonds.

cds_001
Posts: 4
Joined: Sun Jul 16, 2017 11:03 am

Re: most tax efficient way to keep semi-liquid cash

Postby cds_001 » Sun Jul 16, 2017 4:34 pm

Dude2 wrote:Well, you could try something like this:

https://www.bogleheads.org/wiki/Placing_cash_needs_in_a_tax-advantaged_account

IBonds are not available for cashing until 1 year has passed, so that may/may not be viable for your needs.


Oh, wow, what a terrific resource. Thanks for this!

cds_001
Posts: 4
Joined: Sun Jul 16, 2017 11:03 am

Re: most tax efficient way to keep semi-liquid cash

Postby cds_001 » Sun Jul 16, 2017 4:35 pm

aristotelian wrote:
jebmke wrote:Low risk is a vague term. Depending on how much risk you are willing to take, Limited Term or even Intermediate Term Tax Exempt Bond funds could be an option. I use both. They are both perfectly liquid. I can convert funds from either fund to cash in the bank in 2-3 business days.


+1 to this as well as I-Bonds.


Thank you! I'll take a look in to this.

cds_001
Posts: 4
Joined: Sun Jul 16, 2017 11:03 am

Re: most tax efficient way to keep semi-liquid cash

Postby cds_001 » Sun Jul 16, 2017 4:36 pm

radiowave wrote:Unfortunately the only way not to pay any taxes is to not accrue any interest or dividends. So if you put the money in a brick and mortar bank savings or money market account, say Wells Fargo, Chase, Bank of America, etc. the savings rate is so low you will collect a minimal amount of interest but it will be in an FDIC insured account up to $250K/individual. If you want safety but don't mind paying a little bit of taxes, then the Ally 11 mo no penalty CD at 1.50% savings rate will give you a little bit of cash above and beyond and will be likewise FDIC insured. You might consider a federal tax-exempt municipal bond fund, e.g. Vanguard VWITX but still have to pay state taxes (if applicable) on dividends.


A fair point! Thanks for the tips, I'll check these out. I appreciate it!


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