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Helping my brother with a tax question is it better to own VUSXX instead of VMMXX his state tax rate is 6% he makes 48

Posted: Wed Mar 13, 2019 10:02 am
by iamblessed
Vanguard Prime Money Market Fund (VMMXX)

Vanguard Treasury Money Market Fund (VUSXX)

My quick math says yes but I might be wrong. It seems like to me he would save on state taxes even with the rate .10 lower.

Re: Helping my brother with a tax question is it better to own VUSXX instead of VMMXX his state tax rate is 6% he makes

Posted: Wed Mar 13, 2019 2:32 pm
by iamblessed
My quick math tells me you can save about $100 for every 100k invested. Is my math right?

Re: Helping my brother with a tax question is it better to own VUSXX instead of VMMXX his state tax rate is 6% he makes

Posted: Wed Mar 13, 2019 3:35 pm
by mervinj7
Take a look at this thread by Kevin M. You need to know both the Federal Tax Rate and State Tax Rate. For example, for someone who is in the 24% Fed Bracket and 9.3% CA Bracket.
TEY=2.48% for VMMXX
TEY=2.38%*(1-0.24)/(1-0.24-0.093)= 2.71% for VUSXX

viewtopic.php?t=248539

Re: Helping my brother with a tax question is it better to own VUSXX instead of VMMXX his state tax rate is 6% he makes

Posted: Wed Mar 13, 2019 4:58 pm
by megabad
iamblessed wrote:
Wed Mar 13, 2019 2:32 pm
My quick math tells me you can save about $100 for every 100k invested. Is my math right?
At current rates I agree with you in a rough sense (~$100 saved in state taxes). In other words, not enough for me to put much thought into this decision since my money market fund holdings are generally pretty low relative to overall portfolio size.

Re: Helping my brother with a tax question is it better to own VUSXX instead of VMMXX his state tax rate is 6% he makes

Posted: Wed Mar 13, 2019 5:57 pm
by iamblessed
My brother is retired. He pays no federal taxes. I think he made 47 last year. Do you still think the VUSXX will save him money?

Re: Helping my brother with a tax question is it better to own VUSXX instead of VMMXX his state tax rate is 6% he makes

Posted: Wed Mar 13, 2019 9:03 pm
by grabiner
iamblessed wrote:
Wed Mar 13, 2019 5:57 pm
My brother is retired. He pays no federal taxes. I think he made 47 last year. Do you still think the VUSXX will save him money?
The federal tax doesn't matter much, since both funds are subject to the same federal tax. You need to compare the state tax rate on the two funds. At current yields of 2.51% on Prime and 2.35% on Treasury, the yields would be 2.36% and 2.35% in a 6% state tax bracket. Thus it is a wash, and he might as well use Treasury because it has lower risk.

Re: Helping my brother with a tax question is it better to own VUSXX instead of VMMXX his state tax rate is 6% he makes

Posted: Wed Mar 13, 2019 9:07 pm
by iamblessed
Thank You for your help.