High Tax Bracket Liquid Assets

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Topic Author
MiamiHeat
Posts: 11
Joined: Mon Jul 03, 2017 10:09 am

High Tax Bracket Liquid Assets

Post by MiamiHeat »

I am much more of a lurker than poster and first just want to thank the community for being an awesome resource for sound financial advice. You have helped me set up my basic portfolio all by myself with confidence over the last year. I was a student for a long time, accruing debt with nothing to show, and finally am seeing the fruits of my sacrifices and labor.

I am just starting to build up some extra cash after maxing out retirement accounts (and chopping away debt) and know the worst place for all of this money sit in is a brick and mortar bank. My marginal tax rate is 35% federal and about 10% state/city (NY), married filing jointly. I have about 20k cash I'm looking to move from my large chain bank. Overall I am wondering where the best place to put this is right now. Here are the four options I'm considering and also open to others if there are better ones out there:

VMMXX - current yield 2.07%
VMSXX - current yield 1.41%
VYFXX (NY Muni) - current yield 1.41%
Ally or one of the other numerous high yield savings accounts - current rate is 1.80%

A few questions before going forward:

It seems by basic math that, given my high tax bracket, the muni funds seem much more high yield at this time. Am I missing something? From searching this forum I've read the muni funds tend to fluctuate very widely, but for now I want to focus on the current rates. Is the VMSXX fund only exempt from federal taxes and thus if I'm going with a muni it should be the VYFXX which appears to be exempt from state tax as well?

It is my understanding that these MM funds are fairly liquid. You can write checks and deposit into a bank to withdraw as cash within a couple days, is that correct?

Thanks in advance
PFInterest
Posts: 2684
Joined: Sun Jan 08, 2017 12:25 pm

Re: High Tax Bracket Liquid Assets

Post by PFInterest »

i would vote muni or even a state specific muni fund vs a money market.
does it have to go to FI? can it not go to equities?
for someone in the 35% bracket, 20K doesnt really matter too much. i wouldnt generate more taxable income though.
ishkadetto
Posts: 63
Joined: Thu May 24, 2018 2:49 pm
Location: California, USA

Re: High Tax Bracket Liquid Assets

Post by ishkadetto »

MiamiHeat wrote: Tue Aug 21, 2018 11:03 am marginal tax rate is 35% federal and about 10% state/city

VMMXX - current yield 2.07%
VMSXX - current yield 1.41%
VYFXX (NY Muni) - current yield 1.41%
Ally/other - current rate is 1.80%

It seems by basic math that, given my high tax bracket, the muni funds seem much more high yield at this time.

Is the VMSXX fund only exempt from federal taxes and thus if I'm going with a muni it should be the VYFXX which appears to be exempt from state tax as well?
I can respond to the yield piece:

You figure your Tax Equivalent Yield (TEY) by taking the SEC Yield and dividing it by (1 - your tax rate). You at 35% federal and 10% state:
Ally/other (all taxed)= Yield: 1.80% Tax: 1.00 TEY: 1.80%
Prime MMF VMMXX (all taxed)= Yield: 2.07% Tax: 1.00 TEY: 2.07%
Municipal MMF VMSXX (no fed tax)= Yield: 1.41% Tax: 0.65 TEY: 2.17%
Treasury MMF VUSXX (no state tax)= Yield: 1.92% Tax: 0.90 TEY: 2.13%
NY Municipal VYFXX (no tax)= Yield: 1.41% Tax: 0.55 TEY: 2.56%

So yes, looks like the VYFXX gives you the best yield, considering taxes.
Topic Author
MiamiHeat
Posts: 11
Joined: Mon Jul 03, 2017 10:09 am

Re: High Tax Bracket Liquid Assets

Post by MiamiHeat »

PFInterest wrote: Tue Aug 21, 2018 12:13 pm i would vote muni or even a state specific muni fund vs a money market.
does it have to go to FI? can it not go to equities?
for someone in the 35% bracket, 20K doesnt really matter too much. i wouldnt generate more taxable income though.

This money is to serve as an emergency fund plus savings for large purchases like a down payment on a home. I thought about placing all of it in equities, but wouldn't this generate a large amount of capital gains upon withdrawal? I plan to save my way up slowly over time and hope to have 6 figures in whatever vehicle I choose within a few years.
PFInterest
Posts: 2684
Joined: Sun Jan 08, 2017 12:25 pm

Re: High Tax Bracket Liquid Assets

Post by PFInterest »

MiamiHeat wrote: Tue Aug 21, 2018 1:42 pm
PFInterest wrote: Tue Aug 21, 2018 12:13 pm i would vote muni or even a state specific muni fund vs a money market.
does it have to go to FI? can it not go to equities?
for someone in the 35% bracket, 20K doesnt really matter too much. i wouldnt generate more taxable income though.

This money is to serve as an emergency fund plus savings for large purchases like a down payment on a home. I thought about placing all of it in equities, but wouldn't this generate a large amount of capital gains upon withdrawal? I plan to save my way up slowly over time and hope to have 6 figures in whatever vehicle I choose within a few years.
for an efund do munis then.
LTCG are taxed at 0, 15, 20+3.8%....not 35+10%.
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