High bracket investors and short term reserves?

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am
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High bracket investors and short term reserves?

Post by am »

What is everyone in high brackets 35%+ using these days for short term reserves? I am using prime money market but was hoping to switch to something tax free. Is municipal money market better in this situation or has anyone used a short to limited term muni bond?
michaeljmroger
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Re: High bracket investors and short term reserves?

Post by michaeljmroger »

It depends if you pay state taxes or not but, VMLUX is probably a good default.
Topic Author
am
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Re: High bracket investors and short term reserves?

Post by am »

michaeljmroger wrote: Thu Jan 02, 2020 12:13 pm It depends if you pay state taxes or not but, VMLUX is probably a good default.
Yes state taxes but in a state (Illinois) which does not offer a fund to my knowledge and one in which I’d be hesitant to invest in anyways.
ohai
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Re: High bracket investors and short term reserves?

Post by ohai »

I have less than $5k in cash. This is like the bare minimum I need in order to fund expense volatility. I don't know what is the point of emergency cash, to be honest. I have a lot of bonds that I can cash out for an emergency. If I can't wait 2 days, then I have tons of unused credit card balance. Is there something I'm missing?
michaeljmroger
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Re: High bracket investors and short term reserves?

Post by michaeljmroger »

am wrote: Thu Jan 02, 2020 12:19 pm
michaeljmroger wrote: Thu Jan 02, 2020 12:13 pm It depends if you pay state taxes or not but, VMLUX is probably a good default.
Yes state taxes but in a state (Illinois) which does not offer a fund to my knowledge and one in which I’d be hesitant to invest in anyways.
Then I think VMLUX is a good choice. Alternatively, you could also use VUSXX. It's safer and exempt from state taxes, but it'll likely yield a bit less than VMLUX after taxes.
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am
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Re: High bracket investors and short term reserves?

Post by am »

ohai wrote: Thu Jan 02, 2020 12:25 pm I have less than $5k in cash. This is like the bare minimum I need in order to fund expense volatility. I don't know what is the point of emergency cash, to be honest. I have a lot of bonds that I can cash out for an emergency. If I can't wait 2 days, then I have tons of unused credit card balance. Is there something I'm missing?
That’s a good point. If I need to replace the roof or other expense volatility, would rather not have a taxable event. But on the other hand, it’s better than having a big cash drag on returns.

Was hoping for something to place the money that won’t lose more than 10% or so but offers more than a money market.
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am
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Re: High bracket investors and short term reserves?

Post by am »

Decided to go with Amex high yield savings 1.7% currently, same as prime MM. But the FDIC is a free lunch and they have express transfers which allow same day transfers during M-F. Vanguard is slow usually 2-3 business days to get money to my checking. Decided against muni funds to do low yields, not enough reward for the risk.
retired@50
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Re: High bracket investors and short term reserves?

Post by retired@50 »

I hate to point this out, but Amex 1.7% isn't likely to be any better on taxes or rate of return than the Prime Money Market fund you had. What was the point?

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Re: High bracket investors and short term reserves?

Post by abuss368 »

There is an old saying and for good reason "cash is king".

Any low cost money market fund is fine and will do the job. Whether Prime or a Tax Exempt is a simple decision based on individual tax circumstances.
John C. Bogle: “Simplicity is the master key to financial success."
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am
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Re: High bracket investors and short term reserves?

Post by am »

retired@50 wrote: Fri Jan 03, 2020 11:58 am I hate to point this out, but Amex 1.7% isn't likely to be any better on taxes or rate of return than the Prime Money Market fund you had. What was the point?

Regards,
To get my money same day to chase checking which is basically 0% and for the FDIC insurance. Did not feel like muni funds were worth the risk given how little they yield. If yields change will re-evaluate. Switching is a few clicks.
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Re: High bracket investors and short term reserves?

Post by whodidntante »

am wrote: Thu Jan 02, 2020 12:19 pm
michaeljmroger wrote: Thu Jan 02, 2020 12:13 pm It depends if you pay state taxes or not but, VMLUX is probably a good default.
Yes state taxes but in a state (Illinois) which does not offer a fund to my knowledge and one in which I’d be hesitant to invest in anyways.
Illinois taxes their own munis.
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Re: High bracket investors and short term reserves?

Post by UpperNwGuy »

am wrote: Fri Jan 03, 2020 12:36 pm
retired@50 wrote: Fri Jan 03, 2020 11:58 am I hate to point this out, but Amex 1.7% isn't likely to be any better on taxes or rate of return than the Prime Money Market fund you had. What was the point?

Regards,
To get my money same day to chase checking which is basically 0% and for the FDIC insurance. Did not feel like muni funds were worth the risk given how little they yield. If yields change will re-evaluate. Switching is a few clicks.
What kind of emergency would require you to move money into checking on the same day? I can't think of one in my life, and I've been around seven decades. I would stay with Vanguard Prime Money Market if I were you.
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Re: High bracket investors and short term reserves?

Post by am »

UpperNwGuy wrote: Fri Jan 03, 2020 1:52 pm
am wrote: Fri Jan 03, 2020 12:36 pm
retired@50 wrote: Fri Jan 03, 2020 11:58 am I hate to point this out, but Amex 1.7% isn't likely to be any better on taxes or rate of return than the Prime Money Market fund you had. What was the point?

Regards,
To get my money same day to chase checking which is basically 0% and for the FDIC insurance. Did not feel like muni funds were worth the risk given how little they yield. If yields change will re-evaluate. Switching is a few clicks.
What kind of emergency would require you to move money into checking on the same day? I can't think of one in my life, and I've been around seven decades. I would stay with Vanguard Prime Money Market if I were you.
Why stick with prime? I was thinking muni mm but the yield jumps around too much and the yield is about the same at my bracket.
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Re: High bracket investors and short term reserves?

Post by UpperNwGuy »

am wrote: Fri Jan 03, 2020 1:59 pm
UpperNwGuy wrote: Fri Jan 03, 2020 1:52 pm
am wrote: Fri Jan 03, 2020 12:36 pm
retired@50 wrote: Fri Jan 03, 2020 11:58 am I hate to point this out, but Amex 1.7% isn't likely to be any better on taxes or rate of return than the Prime Money Market fund you had. What was the point?

Regards,
To get my money same day to chase checking which is basically 0% and for the FDIC insurance. Did not feel like muni funds were worth the risk given how little they yield. If yields change will re-evaluate. Switching is a few clicks.
What kind of emergency would require you to move money into checking on the same day? I can't think of one in my life, and I've been around seven decades. I would stay with Vanguard Prime Money Market if I were you.
Why stick with prime? I was thinking muni mm but the yield jumps around too much and the yield is about the same at my bracket.
You just answered your own question.
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Re: High bracket investors and short term reserves?

Post by goodenyou »

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am
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Re: High bracket investors and short term reserves?

Post by am »

UpperNwGuy wrote: Fri Jan 03, 2020 2:02 pm
am wrote: Fri Jan 03, 2020 1:59 pm
UpperNwGuy wrote: Fri Jan 03, 2020 1:52 pm
am wrote: Fri Jan 03, 2020 12:36 pm
retired@50 wrote: Fri Jan 03, 2020 11:58 am I hate to point this out, but Amex 1.7% isn't likely to be any better on taxes or rate of return than the Prime Money Market fund you had. What was the point?

Regards,
To get my money same day to chase checking which is basically 0% and for the FDIC insurance. Did not feel like muni funds were worth the risk given how little they yield. If yields change will re-evaluate. Switching is a few clicks.
What kind of emergency would require you to move money into checking on the same day? I can't think of one in my life, and I've been around seven decades. I would stay with Vanguard Prime Money Market if I were you.
Why stick with prime? I was thinking muni mm but the yield jumps around too much and the yield is about the same at my bracket.
You just answered your own question.
Why not Amex high yield savings for the same yield?
UpperNwGuy
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Re: High bracket investors and short term reserves?

Post by UpperNwGuy »

am wrote: Fri Jan 03, 2020 2:37 pm
UpperNwGuy wrote: Fri Jan 03, 2020 2:02 pm
am wrote: Fri Jan 03, 2020 1:59 pm
UpperNwGuy wrote: Fri Jan 03, 2020 1:52 pm
am wrote: Fri Jan 03, 2020 12:36 pm

To get my money same day to chase checking which is basically 0% and for the FDIC insurance. Did not feel like muni funds were worth the risk given how little they yield. If yields change will re-evaluate. Switching is a few clicks.
What kind of emergency would require you to move money into checking on the same day? I can't think of one in my life, and I've been around seven decades. I would stay with Vanguard Prime Money Market if I were you.
Why stick with prime? I was thinking muni mm but the yield jumps around too much and the yield is about the same at my bracket.
You just answered your own question.
Why not Amex high yield savings for the same yield?
When two options are the same, the status quo wins, as there is no reason to make a change.

Also, although I haven't researched this, my impression is that, over the long term, Prime is usually more than most high yield savings accounts but less than certificates of deposit.

However, you seem pretty set on moving from Prime to Amex, so go for it.
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Re: High bracket investors and short term reserves?

Post by Artsdoctor »

Everyone will have to do their own math. If you have a marginal federal rate of 35%, you will almost certainly be subject to the 3.8% NIIT. Illinois will tax tax-exempt funds but they will not tax treasury funds. The yield on muni money market funds will bounce around a bit more than Prime or the Treasury MM funds, but I am going to guess that the muni money market fund will be the best deal for you.

The short-term or limited-term tax-exempt funds will give you a little more interest but withdrawing will be a taxable event. That's not bad if the withdrawals will be only occasional but I wouldn't bother using them as a checking account (they do have checkwriting privileges if I remember correctly).
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Re: High bracket investors and short term reserves?

Post by sycamore »

I'm not in the high tax bracket but there's also the VMFXX Vanguard Federal Money Market Fund. Not "tax-free" but more like "less taxed." This fund has been discussed on previous BH threads. From what I remember, a large percentage of the fund income won't be taxed by the state (for most states), and thus its after-tax yield may be slightly better than Prime VMMXX.
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Re: High bracket investors and short term reserves?

Post by atdharris »

I park my cash at Amex as well. Not any more tax friendly, but it serves its purpose and it is easier to access than Vanguard's MM. That, and I don't have any accounts with Vanguard :)
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Re: High bracket investors and short term reserves?

Post by Sandtrap »

Money Market, CD's, etc.
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annu
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Re: High bracket investors and short term reserves?

Post by annu »

How does CIT bank @ 1.87% savings account compare to these. I am in 35+% bracket. My state does not have a Muni fund, so that is not an option.
I will want the option to be able to get the money out, without it being short term gain event(if it makes sense)
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Re: High bracket investors and short term reserves?

Post by 60B4E24B »

VYFXX since I'm in the 37% (+10%) bracket in NYC.
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