Anyone in high bracket switching to muni. Money market?

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am
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Anyone in high bracket switching to muni. Money market?

Post by am » Thu Apr 12, 2018 10:32 pm

At 32% marginal bracket now 2.10% tax equivalent yield for Vang. Muni mm. Amex savings which I’m using for some of my cash holding is 1.55 taxable. Seems with rising rates coming, the money market will better keep up and probably beat the high yield savings account. I considered short to limited term muni but don’t like the frequent trading policy.

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White Coat Investor
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Re: Anyone in high bracket switching to muni. Money market?

Post by White Coat Investor » Fri Apr 13, 2018 12:10 am

I've been there for a while, ever since it made sense to move from Ally Bank High Yield Savings. I think it was a couple of Fed rate increases ago. Maybe three.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course

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simplesimon
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Re: Anyone in high bracket switching to muni. Money market?

Post by simplesimon » Fri Apr 13, 2018 10:14 am

It seems like even if you're in the 24% bracket, the after-tax yield is higher than what Prime MM is paying. Is anybody else seeing that?

am
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Re: Anyone in high bracket switching to muni. Money market?

Post by am » Fri Apr 13, 2018 3:26 pm

If I remember correctly, somebody posted on another thread that the muni mm yield jumps intermittently only to descend to lower less competitive levels, whereas prime mm does not.

Plus muni mm doesn’t have fdic and is riskier than a high yield savings. Next crisis may involve municipalities, and while you may not lose money, funds could be frozen. I don’t think the extra yield is free

jebmke
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Re: Anyone in high bracket switching to muni. Money market?

Post by jebmke » Fri Apr 13, 2018 3:33 pm

I use Ltd Term TE; it is running about 2% after tax right now.
When you discover that you are riding a dead horse, the best strategy is to dismount.

am
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Re: Anyone in high bracket switching to muni. Money market?

Post by am » Fri Apr 13, 2018 3:50 pm

jebmke wrote:
Fri Apr 13, 2018 3:33 pm
I use Ltd Term TE; it is running about 2% after tax right now.
Thought about this fund, 2.82 yield investor shares at my bracket. But, there’s a 30 day hold from buying every time you sell. Taxable event every time you sell. High to low price over last decade is nearly 5%.

But 381 dollars extra (based on my balance versus high yield savings) from this is appealing. But capitol losses may subtract from this.

Plus, next crisis may lead to higher losses when I may need the money.

Mydanyale
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Re: Anyone in high bracket switching to muni. Money market?

Post by Mydanyale » Fri Apr 13, 2018 5:15 pm

I am interested
What is "Ltd Term TE"?

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Re: Anyone in high bracket switching to muni. Money market?

Post by jebmke » Fri Apr 13, 2018 5:24 pm

Mydanyale wrote:
Fri Apr 13, 2018 5:15 pm
I am interested
What is "Ltd Term TE"?
Limited Term Tax Exempt Fund. There is an Investor class fund and an Admiral Class fund.
When you discover that you are riding a dead horse, the best strategy is to dismount.

Mydanyale
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Re: Anyone in high bracket switching to muni. Money market?

Post by Mydanyale » Fri Apr 13, 2018 5:31 pm

Thank you. I will look into it...

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Artsdoctor
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Re: Anyone in high bracket switching to muni. Money market?

Post by Artsdoctor » Fri Apr 13, 2018 5:32 pm

There's a bit of a difference between money market funds and short-term (or limited-term) muni funds. Take a look at the duration of the bond funds; your short-term fund won't change much, although the limited-term fund could. But the OP is asking about the muni money market funds, which would definitely make sense for someone in a marginal tax bracket of 32%. (People in the 32% bracket and above may also be susceptible to the NIIT of 3.8%, which should be considered as well.)

Mydanyale
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Re: Anyone in high bracket switching to muni. Money market?

Post by Mydanyale » Fri Apr 13, 2018 6:12 pm

Municipal bond interest is excluded from the NIIT
That is a big plus for high income individuals to use munis for income

https://www.irs.gov/taxtopics/tc559

am
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Re: Anyone in high bracket switching to muni. Money market?

Post by am » Fri Apr 13, 2018 7:14 pm

Mydanyale wrote:
Fri Apr 13, 2018 6:12 pm
Municipal bond interest is excluded from the NIIT
That is a big plus for high income individuals to use munis for income

https://www.irs.gov/taxtopics/tc559
Thanks for posting. So for high brackets, munis are 3.8% more valuable than just the tax equivalent calculation. Seems like this added tax applies to interest from cds and savings as well.

So for ltd term muni investor shares the yield is 2.82% at the 33% bracket (didnt have 32% on Vang. calculator). Plus you add an additional 3.8% to the bracket for NIIT so more like 32 + 3.8%= 35.8% So really 2.91% at 35.8% bracket.

That's appealing because from 30k I make an additional $408 in interest from this fund +/- capitol appreciation compared to amex savings.

30k was 28.5k in 2008 at its lowest with ltd. term muni. Something I could tolerate with my cash.

What would happen to this fund if the day of reckoning came for all the pension obligations?

BlackcatCA
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Re: Anyone in high bracket switching to muni. Money market?

Post by BlackcatCA » Fri Apr 13, 2018 7:44 pm

Thanks for reminding about NIIT for TEY calculations. Does T-bill interest exempt from NIIT also?

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Artsdoctor
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Re: Anyone in high bracket switching to muni. Money market?

Post by Artsdoctor » Fri Apr 13, 2018 8:06 pm

BlackcatCA wrote:
Fri Apr 13, 2018 7:44 pm
Thanks for reminding about NIIT for TEY calculations. Does T-bill interest exempt from NIIT also?
NIIT is only applicable on your federal return. Your T-bill interest is part of your AGI on your federal return (but it's not included on the state return).

darrvao777
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Re: Anyone in high bracket switching to muni. Money market?

Post by darrvao777 » Fri Apr 13, 2018 8:21 pm

Yup, using it (VMSXX)

37% marginal bracket and trying to save a large sum of money ($750K) for use on a home downpayment within the next 5 months to 5 years

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simplesimon
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Re: Anyone in high bracket switching to muni. Money market?

Post by simplesimon » Thu May 17, 2018 7:17 am

simplesimon wrote:
Fri Apr 13, 2018 10:14 am
It seems like even if you're in the 24% bracket, the after-tax yield is higher than what Prime MM is paying. Is anybody else seeing that?
Looks like this is no longer true as VSMXX's SEC yield has come back down a bit (was about 1.48% at the time of the quote, now it's at 1.35%). I haven't paid too close attention to the muni market as a whole...I wonder what happened.

BlackcatCA
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Re: Anyone in high bracket switching to muni. Money market?

Post by BlackcatCA » Thu May 17, 2018 9:50 am

VMSXX (not SM) is the muni fund, and unfortunately SEC has come down. But TEY is still favorable versus bank saving rates at this moment; calculation may change. Will be interesting to see with SEC comes back up later in the month (ref the month end 'spike' in yield observed in last 2-3 months)

What puzzles me is why the muni SEC is getting lower when Treasury is moving up. I thought they are somehow correlated directionally, but apparently not?

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Re: Anyone in high bracket switching to muni. Money market?

Post by Clever_Username » Thu May 17, 2018 10:00 am

Federal bracket 24%, close to 32%. 9.x% state (CA). Have been debating moving from money market to California muni money market. I haven't given it much thought because I keep so little in a money market. Maybe I will/should.
"What was true then is true now. Have a plan. Stick to it." -- XXXX, _Layer Cake_

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