Vanguard tax-exempt MM at 2.6% pre-tax

[soupcxan]

VMSXX is at 2.6%, or 3.6% effective pre-tax yield if you're in the 28% bracket...essentially no risk. Better than Emigrant direct at only 3.25.

[grumpy]

I've had most of my cash in that fund for several years. I periodically check the tax equivalent yield against the offers that are out there. I never find anything enough higher to make it worth the trouble to switch.

Grumpy

[WanderALot]

I'm a CA resident, what would be the advantage/disadvantage of choosing the CA Tax-Exempt MM over the regular Tax-Exempt MM (VMSXX) ?

My only thought was that the Tax-Exempt MM might be a little bit safer since it doesn't invest solely in CA specific MM. Which, considering CA's budget problems, might be a more valid concern than usual.

Also, how is the yield calculated? Looking at the recent performance, it looks like the previous month's yield is about 0.15% which would indicate an annual return of only 1.8%.

Thanks,

WanderALot

[cute fuzzy bunny]

Shoot, I didnt even look at the tax exempt MM's as they almost always carry much lower yields than the taxable, and my tax rate is pretty low.

Here's an oddball though, I went to vanguards web site, went to do an exchange from the prime MM fund to the california tax exempt, and all was well until I got to the 'where do you want your dividends and gains sent'. I said to my checking account, it then displayed 6 identical copies of my bank information and asked me to pick one. No matter which one I picked, it told me I couldnt do it without getting a signature guarantee. Never had to do that before.

Heck, if I have to run to the bank to get a sig guarantee and mail it to vanguard every time I want to set up a new fund and have the distributions sent to my bank, thats going to be a huge, huge pain in the butt.

[Michael]

Are the bank accounts and Vanguard accounts registered indentically? If your wife is on one account, but not the other, this might cause problems.

[cute fuzzy bunny]

Yeah I dont think thats it...I've set up all my funds this way and never had a problem. Plus the fact that they had six copies of my bank listed, one after the other, asking me to pick one of them...somethings just broken here. Still waiting for the crack flagship personal service droid to get back to me... :P

[BUM]

I'm with WanderALot!

Am I leaving money on the table?

VMSXX div. is .00155 fed free, still state taxable
VUSXX div. is .00201 fully taxable
VYFXX div. is .00151 fed and NY tax free

Right now I have a ton of cash in VUSXX... Filing jointly we should be in the 15% bracket.

What would you do, you was me?

WonderALot

[MRGALT2U]

Well, I don't know the answer you seek. Got me wondering though what I would do differently if I had a tax issue to deal with at some level. Since I pay no income taxes of any kind, it's kind of a moot point right now. DW pays a little on her income but mine is all 100% sheltered which I like. Not too sure about the future but I figure I can finess that problem if it pops up.

JG

[BUM]

Originally Posted by BUM

I'm with WanderALot!

Am I leaving money on the table?

VMSXX div. is .00155 fed free, still state taxable
VUSXX div. is .00201 fully taxable
VYFXX div. is .00151 fed and NY tax free

Right now I have a ton of cash in VUSXX... Filing jointly we should be in the 15% bracket.

What would you do, you was me?

WonderALot

Absent any advice I maight move some cash into VYFXX... all NY tax free
Anyone? Anyone?

[cute fuzzy bunny]

Got a resolution...sort of...vanguard let me know that they had changed something on their site recently and that it had hosed the bank information for many of their customers.

Apparently duplicate copy #5 in my list of six banks was the one that would have worked...of course I tried #'s 1-3 and 6 with no success.

Today the "portfolio tester" on their web site allowed me to enter a ton of potential changes; clicking 'submit' got me a nice "that page was not found on our web site...would you like to back up and try again?'. Doing so gave me the last page minus all my alterations. After three tries I gave up and dropped them a note that they probably need to spend a little more time and money correcting problems with their web site as the last two things I tried to do on it didnt work.

In the meanwhile, I managed to create the california money fund account as a "I'll fill this out on paper and send you a check" instead of an online exchange/transfer, then threw out the paperwork it printed and did a transfer from the prime money market after it created the placeholder for the account waiting for the paperwork.
:P

[Adventuregirl]

Hi there! Just wondering if anyone could give me a quick explanation of these tax exempt funds and what one might use them for? I have a lump of money in a regular MM ( because I will need access to it at some unknown future date) and will have to pay tax on the interest earned....just wondering if the MM's mentioned above help avoif the taxes on earnings?
Thanks!
Adventuregirl

That's right, you pay no federal tax on the earnings of the tax-exempt money market fund. If you use a fund that is also tax-exempt for your state, you pay no state income tax.

Other than that, they are the same as regular money market funds, and you'd use them in the same way. Usually, the tax exempt funds give you a lower rate of return. But sometimes, as now, they do not.

I just transfered from the Vanguard Prime MM to the Calif Tax Exempt a few minutes ago. Thanks for the tip.

[soupcxan]

Someone on the Morningstar boards told me that there is some sort of end-of-quarter glitch that causes MM fund yields to spike, then drop back down. Can anyone confirm that is what's causing these excessive yields? Or is there a reasonable chance that these yields will stay up? I'm debating whether to move money into Emigrant direct at 3.25% taxable or the VG tax-exempt at 2.68%...am tired of shuffling money around.

I heard some other government-related reason why this situation exists as well.* It's true that it's usually just a temporary thing.

However, the yield for the taxable and tax-exempt funds have been quite similar for a while.* Go to the CA Tax Exempt performance page, scroll to the bottom, and add the Prime Money Market fund to the "Growth of $10,000" chart.*

You'll see that since 2002, the lines are almost perfectly parallel.* So I'm going to keep both funds open, and move money from one to the other when it's warranted.

Warning: I don't necessarily know what I'm talking about.

[BUM]

Originally Posted by soupcxan

Someone on the Morningstar boards told me that there is some sort of end-of-quarter glitch that causes MM fund yields to spike, then drop back down. Can anyone confirm that is what's causing these excessive yields? Or is there a reasonable chance that these yields will stay up? I'm debating whether to move money into Emigrant direct at 3.25% taxable or the VG tax-exempt at 2.68%...am tired of shuffling money around.

My Vanguard babe said the same thing. I couldnt make sense of what she was saying but it related to buying then selling just to get the dividends.
Can anyone amplify or clarify?

[soupcxan]

Wanted to bump the thread...Vanguard's tax-exempt MMFs have spiked again:

Federal Tax-Exempt Money Mkt 3.16%
CA Tax-Exempt Money Mkt 3.09%
NJ Tax-Exempt Money Mkt 3.07%
NY Tax-Exempt Money Mkt 3.13%
OH Tax-Exempt Money Mkt 3.16%
PA Tax-Exempt Money Mkt 3.17%

Obviously, 3.16% is better than Emigrant Direct's 4.0% if you are in the +25% bracket, plus state taxes could make it even more advantageous. However, I still don't know why these MMF rates spike at the end of the month, nor if there is any reasonable way to predict what the average rate will be over the course of the month.

[ats5g]

Originally Posted by soupcxan

Obviously, 3.16% is better than Emigrant Direct's 4.0% if you are in the +25% bracket, plus state taxes could make it even more advantageous. However, I still don't know why these MMF rates spike at the end of the month, nor if there is any reasonable way to predict what the average rate will be over the course of the month.

From Vanguard's website, when you click on "yield":

A snapshot of interest and dividend income from a bond or fund. The yield, expressed as a percentage of the bond's face value or the fund's net asset value, is based on income earned over the past 30 days and is annualized, or projected, for the coming year.

[soupcxan]

I understand that they're constantly replacing the maturing paper with newly issued paper as the old notes come due. But it seems like the advertised rate for the fund goes up 20-30bp right around the end of the month, then drops back down during the first week of the next month. But why does it seem to repeat this pattern so consistently?