Intermediate Term Treasury vs Tax Exempt Fund

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manedark
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Intermediate Term Treasury vs Tax Exempt Fund

Post by manedark » Fri May 18, 2018 1:51 am

Comparing intermediate funds - treasury and tax-exempt for 25% federal tax bracket and 9.3% CA tax.
Intermediate Term Tax Exempt - VWITX - SEC yield = 2.44% - after tax yield is 2,44 * (1 - .093) = 2.19%
Intermediate Treasury Fund - VFITX - SEC yield = 2.67% - after tax yield is 2.67 * (1 - .25) = 2.00%

Tax exempt is yield is only marginally better - whereas Treasury Fund has minimal risk or default or call risk.

Is it better to go for Treasury Fund in my case?

Thanks in advance.

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welderwannabe
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Re: Intermediate Term Treasury vs Tax Exempt Fund

Post by welderwannabe » Fri May 18, 2018 5:46 am

There is no 25% Federal tax bracket that I am aware of, so I would double check your numbers. Are you looking at your marginal rate? If you are actually in the 24% bracket, the upper ends of that are subject to the 3.8% net investment tax too, so you would want to factor that in.

If you are looking at your 'effective' tax rate, then your marginal rate is far higher than 25% and the tax exempt will probably win all day.

However, taking your numbers at face value and answering your specific question, I would probably lean towards treasuries or possibly a 50/50 split.
I am not an investment professional, but I did stay at a Holiday Inn Express last night.

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Re: Intermediate Term Treasury vs Tax Exempt Fund

Post by carguyny » Fri May 18, 2018 6:15 am

If you're game for a little complexity, buy munis directly. As an example, I purchased some 12 month maturity NY GO bonds for 1.9% YTM yesterday. Much better deal to buy munis in the secondary market than any muni funds.

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Re: Intermediate Term Treasury vs Tax Exempt Fund

Post by manedark » Fri May 18, 2018 10:03 am

welderwannabe wrote:
Fri May 18, 2018 5:46 am
There is no 25% Federal tax bracket that I am aware of, so I would double check your numbers. Are you looking at your marginal rate? If you are actually in the 24% bracket, the upper ends of that are subject to the 3.8% net investment tax too, so you would want to factor that in.

I made some approximations here. Yes marginal rate of 24%. Good point about NIIT but I think I should stay below the 250K limit for married filing jointly - as in I have 175K as paycheck but I dont think I will exceed 75K as capital gains in a single year.
welderwannabe wrote:
Fri May 18, 2018 5:46 am
If you are looking at your 'effective' tax rate, then your marginal rate is far higher than 25% and the tax exempt will probably win all day.

What do you think that marginal l rate is far higher?
welderwannabe wrote:
Fri May 18, 2018 5:46 am
However, taking your numbers at face value and answering your specific question, I would probably lean towards treasuries or possibly a 50/50 split.
Yeah that was a broad split I was thnking of. Actually I want to divide say 30K into equal parts of these two funds do and the California Long Term Tax Exempt.

What do you think?

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Re: Intermediate Term Treasury vs Tax Exempt Fund

Post by manedark » Fri May 18, 2018 10:05 am

carguyny wrote:
Fri May 18, 2018 6:15 am
If you're game for a little complexity, buy munis directly. As an example, I purchased some 12 month maturity NY GO bonds for 1.9% YTM yesterday. Much better deal to buy munis in the secondary market than any muni funds.
I don't think I have time or energy to sift through and balance individual munis.

Moreso, even for Treasuries I think investing in a fund rather than buying from Treasury Direct is a much simpler and liquid way without hassle of maintaining another account. What do you think? Is paying the ER for a Treasury Fund worth the value you get, seeing it from a US investment beginners eyes.

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welderwannabe
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Re: Intermediate Term Treasury vs Tax Exempt Fund

Post by welderwannabe » Fri May 18, 2018 8:02 pm

manedark wrote:
Fri May 18, 2018 10:03 am

What do you think that marginal l rate is far higher?
I was trying to guess where you came up with 25%. Some people look at their effective rate and think that is their marginal rate. Since effective rate is basically all the brackets you passed through averaged together in a weighted fashion, if you are at 25%, it would mean you are probably in the 37% marginal rate or above...

Doesn't matter though, since that isn't what you were looking at.
I am not an investment professional, but I did stay at a Holiday Inn Express last night.

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Re: Intermediate Term Treasury vs Tax Exempt Fund

Post by manedark » Fri May 18, 2018 8:15 pm

Ok thanks! Yes I meant the marginal rate of 24%.

If I do the same calculation for long term funds also:
Long Term Tax Exempt - VCITX - SEC yield = 2.64% - after tax yield is 2,44 * (1 - .093) = 2.37%
Long Treasury Fund - VUSTX - SEC yield = 2.94% - after tax yield is 2.67 * (1 - .25) = 2.20%

There is a very little to favor the Munis here. Maybe difference will be more noticeable if I move to a higher Federal marginal tax bracket in the future.

My point is that I got advise on the forums here to consider those two tax exempt bonds for money I want to invest for 5-10 years time horizon in taxable account. But if I replace the same with the equivalent Treasury funds - I dont see much difference.

Should I be dividing equally into all 4 of these funds - isnt it too much spreading for not much gain?

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Re: Intermediate Term Treasury vs Tax Exempt Fund

Post by ofckrupke » Fri May 18, 2018 8:58 pm

manedark wrote:
Fri May 18, 2018 8:15 pm
Long Term Tax Exempt - VCITX - SEC yield = 2.64% - after tax yield is 2,44 * (1 - .093) = 2.37%
Long Treasury Fund - VUSTX - SEC yield = 2.94% - after tax yield is 2.67 * (1 - .25) = 2.20%
VCITX is the california LT muni fund, so either you meant the national fund VWLTX/VWLUX or should review your tax math on that line (or maybe both).
And when you''ve settled on that, it needs to be pointed out that VUSTX has a duration of 16.8 years which is very different from the 7.0y of the CA longterm muni or 6.8y of the national LT muni fund. This is an impediment to fair comparison of the credit risk/return tradeoff.

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Re: Intermediate Term Treasury vs Tax Exempt Fund

Post by Kevin M » Fri May 18, 2018 9:05 pm

manedark wrote:
Fri May 18, 2018 10:05 am
carguyny wrote:
Fri May 18, 2018 6:15 am
If you're game for a little complexity, buy munis directly. As an example, I purchased some 12 month maturity NY GO bonds for 1.9% YTM yesterday. Much better deal to buy munis in the secondary market than any muni funds.
I don't think I have time or energy to sift through and balance individual munis.

Moreso, even for Treasuries I think investing in a fund rather than buying from Treasury Direct is a much simpler and liquid way without hassle of maintaining another account. What do you think? Is paying the ER for a Treasury Fund worth the value you get, seeing it from a US investment beginners eyes.
You don't need a TD account to buy Treasuries. You can buy them at Vanguard very easily. Same choices for buying at auction as at TD, and you also can buy on secondary market if what you are looking for isn't being auctioned. No commissions for either auction or secondary market.

I would say that if you are accurate about your marginal tax rates, then Treasuries probably provide same if not higher taxable-equivalent yield (TEY) if you stick with at least AA munis (Vanguard funds hold lower credit ratings than that though).

The Treasury yield curve is quite steep to one year maturity, moderately steep to 2-year, just barely steep enough to go to 3-year, and too flat to extend beyond that, IMO. Therefore, if you want to stick with funds, I'd stick with short-term Treasury.

Kevin
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ofckrupke
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Re: Intermediate Term Treasury vs Tax Exempt Fund

Post by ofckrupke » Fri May 18, 2018 9:10 pm

manedark wrote:
Fri May 18, 2018 1:51 am
Comparing intermediate funds - treasury and tax-exempt for 25% federal tax bracket and 9.3% CA tax.
Intermediate Term Tax Exempt - VWITX - SEC yield = 2.44% - after tax yield is 2,44 * (1 - .093) = 2.19%
Intermediate Treasury Fund - VFITX - SEC yield = 2.67% - after tax yield is 2.67 * (1 - .25) = 2.00%
A more attractive intermediate treasury fund is the index version, VSIGX for admiral shares that are available for 10k minimum (the active fund has higher mins for Adm shares)... which by recollection is in your reach. Duration 5.1 years, ER=0.07%, SEC=2.81, so the SEC yield after tax = 2.14% using the 24% bracket...even closer to the intermediate muni fund AT yield.
You are the one who must choose.

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Re: Intermediate Term Treasury vs Tax Exempt Fund

Post by ofckrupke » Fri May 18, 2018 9:23 pm

Kevin M wrote:
Fri May 18, 2018 9:05 pm
You don't need a TD account to buy Treasuries.
Just to pile on a little, TD seems useless for purchase of anything you may ever choose to sell prior to maturity (except for savings bonds for which it's called redemption) because in order to sell you'd have to first have them transferred to some other custodian and that would take time and involve maintaining a link between TD and the other custodian.
Personally I like the clunky TD web site (I always hear a TTY from deep memory and sometimes a paper tape punch/reader when I'm using it), but I am like doc and envision potential sale of any treasury before maturity, so this inability to directly sell into the secondary market from their site is for me a deal-killer.
(I am cheap enough though to reconsider if access to auction and secondary markets ever acquired overt charges from my other custodians.)

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Re: Intermediate Term Treasury vs Tax Exempt Fund

Post by manedark » Fri May 18, 2018 11:46 pm

ofckrupke wrote:
Fri May 18, 2018 8:58 pm
VCITX is the california LT muni fund, so either you meant the national fund VWLTX/VWLUX or should review your tax math on that line (or maybe both).
You are right, the math was not correct, here is the correct one:
Long Term Tax Exempt - VCITX - SEC yield = 2.64% - after tax yield is 2.64 (since there is no federal or state tax).
Long Treasury Fund - VUSTX - SEC yield = 2.94% - after tax yield is 2.67 * (1 - .25) = 2.20%

Now there definitely a difference.
ofckrupke wrote:
Fri May 18, 2018 8:58 pm
And when you''ve settled on that, it needs to be pointed out that VUSTX has a duration of 16.8 years which is very different from the 7.0y of the CA longterm muni or 6.8y of the national LT muni fund. This is an impediment to fair comparison of the credit risk/return tradeoff.
Thanks for bringing that out. I took the wrong assumption that all "long term" funds are nearly the same duration. Is there a Treasury Fund in the 7 year duration range?

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Re: Intermediate Term Treasury vs Tax Exempt Fund

Post by ofckrupke » Sat May 19, 2018 12:05 am

manedark wrote:
Fri May 18, 2018 11:46 pm
Is there a Treasury Fund in the 7 year duration range?
Fidelity's Intermediate Treasury Index (premium class = FIBAX, $10k min) tracks a 5-10y index as opposed to Vanguard's which tracks a 3-10y index, and has a duration of 6.33y currently. That might not be close enough to 7, or Vanguard enough for you though.

But a combination of 5 parts Vanguard Intermediate Treasury Index (VSIGX), 1 part Long Term Treasury (VUSTX,VUSUX) would also have a duration of about 7 years, and the SEC yield of that portfolio would be the same as combining their individual SEC yield values in the same proportion. So you could model with that. (Looks like 6:1 or 85:15 would actually be closer to the national LT muni fund's 6.8y duration.)

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Re: Intermediate Term Treasury vs Tax Exempt Fund

Post by manedark » Sat May 19, 2018 12:22 am

Kevin M wrote:
Fri May 18, 2018 9:05 pm
You don't need a TD account to buy Treasuries. You can buy them at Vanguard very easily. Same choices for buying at auction as at TD, and you also can buy on secondary market if what you are looking for isn't being auctioned. No commissions for either auction or secondary market.
That is great to know. I started reading stuff about primary and secondary market. Need to know more about pros / cons of both.
Kevin M wrote:
Fri May 18, 2018 9:05 pm
I would say that if you are accurate about your marginal tax rates, then Treasuries probably provide same if not higher taxable-equivalent yield (TEY) if you stick with at least AA munis (Vanguard funds hold lower credit ratings than that though).
I see.
Kevin M wrote:
Fri May 18, 2018 9:05 pm
The Treasury yield curve is quite steep to one year maturity, moderately steep to 2-year, just barely steep enough to go to 3-year, and too flat to extend beyond that, IMO. Therefore, if you want to stick with funds, I'd stick with short-term Treasury.
I had to look up what you meant by steep :-) By short team Treasury do you mean VFISX or similar fund or the actual Treasury like T-bills, notes etc.?

Thanks!

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Re: Intermediate Term Treasury vs Tax Exempt Fund

Post by manedark » Sat May 19, 2018 12:28 am

ofckrupke wrote:
Fri May 18, 2018 9:10 pm
A more attractive intermediate treasury fund is the index version, VSIGX for admiral shares that are available for 10k minimum (the active fund has higher mins for Adm shares)... which by recollection is in your reach. Duration 5.1 years, ER=0.07%, SEC=2.81, so the SEC yield after tax = 2.14% using the 24% bracket...even closer to the intermediate muni fund AT yield.
You are the one who must choose.
Thanks I will consider that as well.
Regarding TD website, that is good info as well - that it is mostly useful for holding the securities for a long term without frequently selling them. I think for now I want the flexibility to liquidate the securities without any transfer procedure - that is all the more reason to buy from Vanguard.

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Re: Intermediate Term Treasury vs Tax Exempt Fund

Post by welderwannabe » Sat May 19, 2018 6:31 am

I find TD far easier to buy bills and notes on than either Fidelity or Vanguard. The reason is they let you put in an order for an upcoming auction that hasn't been 'announced' yet...usually up to 2-3 months ahead. Fidelity and Vanguard doesn't do that, so you have to remember to log in and place your order between the time of the 'announcement' and the 'auction'. Often that is a narrow 2-3 day window. With the 28 day TBills, it is the worst, because the announcement is on Monday and the auction on Tuesday. This gives you 24 hours to get your order in. It is really silly, since the auction schedule is published by the Treasury far in advance so everyone knows what and when things will be, barring any natural disasters or something else.

The big problem is that TD's website stinks, and they don't have any secondary market. You have to transfer the security to a broker.

So, to this day, I largely keep my bills & notes at Fidelity and savings bonds at TD. I have one TBill now at TD. I just wish Fidelity would come up with a way for me to place an order for an upcoming auction that hasn't been announced yet.
I am not an investment professional, but I did stay at a Holiday Inn Express last night.

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Re: Intermediate Term Treasury vs Tax Exempt Fund

Post by Kevin M » Sat May 19, 2018 2:31 pm

manedark wrote:
Sat May 19, 2018 12:22 am
That is great to know. I started reading stuff about primary and secondary market. Need to know more about pros / cons of both.
You will get the best pricing at auction--same as institutional investors--but you have more flexibility about when to buy and exactly what maturities to buy on secondary market. You will pay a few basis points more if buying smaller quantities (like less than 400) on secondary market (quantity 1 = $1,000 face value).
I had to look up what you meant by steep :-) By short team Treasury do you mean VFISX or similar fund or the actual Treasury like T-bills, notes etc.?
I personally would stick with individual Treasuries, but by "funds", I meant "mutual funds", so yeah, something like VFISX if you want to stick with a Treasury fund.

Kevin
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Re: Intermediate Term Treasury vs Tax Exempt Fund

Post by manedark » Sat May 19, 2018 6:31 pm

Thanks walderwannabe and Kevin. Its good information.

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Re: Intermediate Term Treasury vs Tax Exempt Fund

Post by manedark » Tue May 22, 2018 5:07 pm

ofckrupke wrote:
Fri May 18, 2018 9:10 pm
manedark wrote:
Fri May 18, 2018 1:51 am
Comparing intermediate funds - treasury and tax-exempt for 25% federal tax bracket and 9.3% CA tax.
Intermediate Term Tax Exempt - VWITX - SEC yield = 2.44% - after tax yield is 2,44 * (1 - .093) = 2.19%
Intermediate Treasury Fund - VFITX - SEC yield = 2.67% - after tax yield is 2.67 * (1 - .25) = 2.00%
A more attractive intermediate treasury fund is the index version, VSIGX for admiral shares that are available for 10k minimum (the active fund has higher mins for Adm shares)... which by recollection is in your reach. Duration 5.1 years, ER=0.07%, SEC=2.81, so the SEC yield after tax = 2.14% using the 24% bracket...even closer to the intermediate muni fund AT yield.
You are the one who must choose.
Just for the right "duration" comparison, I am comparing the following (even though the Admiral Shares limits are different 10K and 50K respectively) - both have roughly the same "duration" 5.1 and 5.2 years.

Vanguard Intermediate-Term Treasury Index Fund Admiral Shares (VSIGX) - SEC yield = 2.81% - after tax yield is 2.81 * (1 - .24) = 2.13%
Vanguard Intermediate-Term Tax-Exempt Fund Admiral Shares (VWIUX) - SEC yield = 2.53% - after tax yield is 2.53 * (1 - .093) = 2.29%

Very little to choose - only about 16 basis points.

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Re: Intermediate Term Treasury vs Tax Exempt Fund

Post by manedark » Tue May 22, 2018 5:29 pm

Doing the same for the California vs Treasury Funds comparison:

Vanguard California Intermediate-Term Tax-Exempt Fund Investor Shares (VCAIX) - SEC yield 2.27% - after tax - 2.27%
Vanguard Intermediate-Term Treasury Fund Investor Shares (VFITX) - SEC yield 2.68% - after tax - 2.03%

Again a difference of 0.24% or 24 basis points. 24$ per year for 10K invested. Not worth the risk to go for Munis.

What am I missing? Higher tax bracket and much higher investment will start to favor Munis substantially?

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Re: Intermediate Term Treasury vs Tax Exempt Fund

Post by grabiner » Tue May 22, 2018 8:33 pm

manedark wrote:
Tue May 22, 2018 5:29 pm
Doing the same for the California vs Treasury Funds comparison:

Vanguard California Intermediate-Term Tax-Exempt Fund Investor Shares (VCAIX) - SEC yield 2.27% - after tax - 2.27%
Vanguard Intermediate-Term Treasury Fund Investor Shares (VFITX) - SEC yield 2.68% - after tax - 2.03%
And these two have the same duration, and essentially the same expenses (0.19% versus 0.20%; decrease both by 0.10% for Admiral shares with a $50K minimum).

So at current yields, I don't think this is worth the risk difference, and it makes more sense to use either this Treasury fund, or some other Treasury fund if you would like a different risk/return profile.

Actually, I wouldn't use either of these for an investment of less than $50K. Rather, I would prefer Intermediate-Term Treasury Index Admiral Shares, with 0.07% expenses for a $10K minimum, or for the ETF class VGIT. This yields 2.81%, which is 2.14% after 24% federal tax.
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Re: Intermediate Term Treasury vs Tax Exempt Fund

Post by manedark » Tue May 22, 2018 11:06 pm

grabiner wrote:
Tue May 22, 2018 8:33 pm
Actually, I wouldn't use either of these for an investment of less than $50K. Rather, I would prefer Intermediate-Term Treasury Index Admiral Shares, with 0.07% expenses for a $10K minimum, or for the ETF class VGIT. This yields 2.81%, which is 2.14% after 24% federal tax.
I think you mean Vanguard Intermediate-Term Treasury Index Fund Admiral Shares (VSIGX), right? What is the difference between this and "Vanguard Intermediate-Term Treasury Fund Admiral Shares (VFIUX)"?

Another thing, so regarding the general rule of not holding a bond fund in taxable, can it be relaxed for govt/treasury bonds? Can we argue that because it is atleast free of state taxes (9.3% for me), it is Ok to hold in taxable account. Any other reason - the way the dividend distributions happen between this and the Total Bond Market fund - I guess my question is - are either of the govt/treasury bonds discussed above are more tax efficient than Total Bond Market?

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Re: Intermediate Term Treasury vs Tax Exempt Fund

Post by grabiner » Tue May 22, 2018 11:20 pm

manedark wrote:
Tue May 22, 2018 11:06 pm
grabiner wrote:
Tue May 22, 2018 8:33 pm
Actually, I wouldn't use either of these for an investment of less than $50K. Rather, I would prefer Intermediate-Term Treasury Index Admiral Shares, with 0.07% expenses for a $10K minimum, or for the ETF class VGIT. This yields 2.81%, which is 2.14% after 24% federal tax.
I think you mean Vanguard Intermediate-Term Treasury Index Fund Admiral Shares (VSIGX), right? What is the difference between this and "Vanguard Intermediate-Term Treasury Fund Admiral Shares (VFIUX)"?
The Treasury Index fund tracks an index and has an ETF class, The non-index Treasury fund has a few non-Treasury government bonds and is thus not 100% state tax exempt; also, as a non-index fund, the Admiral minimum is $50K.
Another thing, so regarding the general rule of not holding a bond fund in taxable, can it be relaxed for govt/treasury bonds? Can we argue that because it is atleast free of state taxes (9.3% for me), it is Ok to hold in taxable account. Any other reason - the way the dividend distributions happen between this and the Total Bond Market fund - I guess my question is - are either of the govt/treasury bonds discussed above are more tax efficient than Total Bond Market?
The Treasury funds are more tax-efficient than Total Bond Market, particularly in states such as CA in which a fund with less than 50% of its holdings exempt from state tax gets no tax benefit. You pay 24% tax on Treasury funds, and 33.3% on Total Bond Market Index. Since you pay 24.3% even on qualified dividends, and since stock funds will have tax on capital gains when you sell in addition to the dividend yield, holding Treasuries in a taxable account is reasonable now. If yields rise, you can switch to holding stock in a taxable account then; the rising rates will mean that you can sell your Treasury fund for a capital loss and switch with no tax cost.

I have never given an absolute recommendation about stock or bonds in taxable; most often, it depends on the options in your 401(k). If you have an unusually good fixed-income fund such as the TSP G fund or TIAA Traditional Annuity, then you should hold fixed-income in that fund. If the only low-cost fund in your 401(k) is an S&P 500 index, then you should hold US stock in your 401(k) even if that might force you to hold less tax-efficient bonds in taxable.
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Re: Intermediate Term Treasury vs Tax Exempt Fund

Post by manedark » Tue May 22, 2018 11:35 pm

Thanks David. Makes sense.

My 401K offers following funds:
Image

The issue is that I have the 35K lying with me to invest. Moving it to the 401K - through the paycheck will take a while. I am already investing 9K to get employer match - do you suggest I max out the 18K limit with 401K and then invest the rest i.e. 26K into the said Treasury Index Fund.

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Re: Intermediate Term Treasury vs Tax Exempt Fund

Post by grabiner » Wed May 23, 2018 6:24 pm

manedark wrote:
Tue May 22, 2018 11:35 pm
The issue is that I have the 35K lying with me to invest. Moving it to the 401K - through the paycheck will take a while. I am already investing 9K to get employer match - do you suggest I max out the 18K limit with 401K and then invest the rest i.e. 26K into the said Treasury Index Fund.
This looks like a reasonable strategy. Hold a Treasury index in your taxable account, then sell it as needed to keep your other taxable needs (emergency fund, anticipated short-term expenses) intact as you move the money to your 401(k). Count the Treasury index as part of your asset allocation.

You have excellent 401(k) options in both stocks and bonds (institutional shares of Vanguard's indexes) so there is no particular reason to prefer holding one over the other in the 401(k). Since you will be holding more bonds in your taxable account, your 401(k) should presumably be all stock.

And this also gives a good reason to hold bonds in your taxable account. Since you plan to sell the funds in your taxable account soon in order to invest in your 401(k) and IRA, you won't get the benefit of tax deferral on stock gains.
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Re: Intermediate Term Treasury vs Tax Exempt Fund

Post by manedark » Wed May 23, 2018 7:33 pm

I increased my 401K to 18% so that it gets me to 18.5K by year end - this will benefit to reduce the taxes (since I have large capital gains this year - including NIIT). I was hesitant to increase 401K because of my current and possibly future non-resident alien status and its tax implication - but I believe if I handle it correctly - contributing to 401K is still better for me - especially since I have now deferred the house purchase plan, indefinitely.
grabiner wrote:
Wed May 23, 2018 6:24 pm
And this also gives a good reason to hold bonds in your taxable account. Since you plan to sell the funds in your taxable account soon in order to invest in your 401(k) and IRA, you won't get the benefit of tax deferral on stock gains.
Coming back to this, my plan actually is to "hold" this 26K in Treasury for it's duration - not sell it to fund 401K (I already set aside 9K for the extra 401K contribution) unless there is a real emergency i.e. as you said I want to treat it as asset allocation. That is why I want to keep it as Intermediate Term.

If what you suggest - selling it to fund 401K etc. or other taxable expenses - then Intermediate term is not good for that, right? In that case I should be investing in Short Term Treasury, isnt it?

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Re: Intermediate Term Treasury vs Tax Exempt Fund

Post by grabiner » Wed May 23, 2018 7:40 pm

manedark wrote:
Wed May 23, 2018 7:33 pm
If what you suggest - selling it to fund 401K etc. or other taxable expenses - then Intermediate term is not good for that, right? In that case I should be investing in Short Term Treasury, isnt it?
The duration of your bond investments should not be longer than your bond holding period. Thus, if you are saving money for a short-term expense such as a new car bought next year, it should be in short-term bond funds or other short-duration investments such as CDs.

But if you are holding money in one bond fund and intending to move it to another bond fund, that doesn't end your holding period. Intermediate-Term Treasury is fine for money which will be moved to Total Bond Market in your IRA next year; if rates rise, you will still have the money in bonds for years to benefit from the higher rates.
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Re: Intermediate Term Treasury vs Tax Exempt Fund

Post by manedark » Thu May 24, 2018 12:05 am

grabiner wrote:
Wed May 23, 2018 7:40 pm
But if you are holding money in one bond fund and intending to move it to another bond fund, that doesn't end your holding period.
Thanks again David. But when you sell a bond there willbe capital gains, right. I think you are implying that theh will be minimal or actually even be losses that can bd tax harvested since we are going into a high interest environment.

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Re: Intermediate Term Treasury vs Tax Exempt Fund

Post by grabiner » Thu May 24, 2018 9:57 pm

manedark wrote:
Thu May 24, 2018 12:05 am
grabiner wrote:
Wed May 23, 2018 7:40 pm
But if you are holding money in one bond fund and intending to move it to another bond fund, that doesn't end your holding period.
Thanks again David. But when you sell a bond there willbe capital gains, right. I think you are implying that theh will be minimal or actually even be losses that can bd tax harvested since we are going into a high interest environment.
There could be either capital gains or losses on selling a bond fund, but they will be relatively small.
Wiki David Grabiner

manedark
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Re: Intermediate Term Treasury vs Tax Exempt Fund

Post by manedark » Thu May 24, 2018 11:16 pm

Got it thanks!

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