Vanguard Treasury Money Market (VUSXX)

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weltschmerz
Posts: 271
Joined: Thu Jul 30, 2009 9:17 pm
Location: SoCal

Vanguard Treasury Money Market (VUSXX)

Post by weltschmerz » Sun Jun 18, 2017 1:36 pm

Since Vanguard made the switch to the Federal Money Market (VMFXX) for the brokerage settlement account, I have kept small amounts of money there. When I went to do my taxes last year, I figured that since VMFXX is invested in federal securities, the dividend income would be exempt from state (CA) taxation......I was wrong! Have a look at this form:

U.S. government obligations information
https://personal.vanguard.com/pdf/USGO_022017.pdf

Fund --- % of income from US obligations --- % invested in US obligations --- Current Yield --- Expense Ratio
VMFXX Federal Money Market Fund --- 58.77 --- 62.55 --- 0.80% --- 0.11%
VMMXX Prime Money Market Fund --- 19.31 --- 21.40 --- 1.01% --- 0.16%
VUSXX Treasury Money Market Fund** --- 100.00 --- 100.00 --- 0.82% --- 0.09%

**This fund meets the threshold requirements for California, Connecticut, and New York, which require that 50% of the fund’s assets
at each quarter-end within the tax year consist of U.S. government obligations.

As you can see, VUSXX is the only MM exempt from CA state taxation. VMFXX is not exempt (% US obligations must have dipped below 50% at some point during the year). With the recent increase in yields, I had been contemplating keeping some emergency cash into the either VMMXX or VMFXX, but now it looks like VUSXX is worthy of consideration as well. The after-tax yield of VMMXX would still be higher, but I believe that VUSXX (with 100% US treasuries) is the safer choice.

The biggest downside is that VUSXX requires a $50k minimum to open. It does have the lowest expense ratio though.

Of course online savings accounts are also a valid option (with even higher yields and FDIC protection), but VUSXX should be considered the safest option for folks that want to keep their money within Vanguard.

TL;DR
Since VMFXX lacks the state tax exemption, I see no reason to keep any cash there. VUSXX provides great safety (100% US treasuries), a lower expense ratio, and is exempt from state taxes.

lack_ey
Posts: 5786
Joined: Wed Nov 19, 2014 11:55 pm

Re: Vanguard Treasury Money Market (VUSXX)

Post by lack_ey » Sun Jun 18, 2017 1:52 pm

Hm, usually I would expect a yield advantage from Federal Money Market over Treasury Money Market, one that more than makes up for the higher taxes even in CA. And a quick check at least of distribution yield in the last couple years seems to indicate that was common.

Both are still worse than savings accounts after tax, and realistically Prime Money Market is unlikely to encounter any of the potential issues requiring gates, redemption fees, etc.

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