Taxable MM vs tax-free MM ?

[wanaberetiree]

Hello

Say you are in the 22%-24% tax bracket and you have two options:

Money market fund taxable - 4.2%
Money market fund tax-free - 2.9%
State - CA

Which one would you select?

Trying to figure it out ....


Thx

 

[calmloki]

So aren't you at 9% Cali state tax as well? So 4.2% - 0.924% Fed = 3.276% - 0.378% State = 2.898% cash in your pocket if you go with taxable.
Going through the same thing with fully taxable CD rates vs. Treasury bills.

 

[RetireBy90]

So if my math is correct, if you get 4.2% and in 22% and 9% slate, so you keep 69% of the 4.2 or 2.898% which is marginally less than the tax free2.9%

 

[Graybeard]

Interesting thread because I was looking at the same thing today.

Using VMSXX Municipal Money Market Fund it states that it is exempt from federal income tax but no mention of state income tax so I assume it is not tax free at the state level? Is that a correct assumption?

The current 7 day SEC yield is 3.47%, I'm probably in the 22% federal bracket for 2023 due to RMDs, state income tax is 4.5%. So 22% + 4.5% = 26.5% total so 73.5% * 4.2% = 3.087% and it looks like VMSXX is a better option for me?

 

[COcheesehead]

There are tax equivalent tools you can use to figure this out. Fidelity has them on their site.

 

[jazz4cash]

Interesting thread because I was looking at the same thing today.

Using VMSXX Municipal Money Market Fund it states that it is exempt from federal income tax but no mention of state income tax so I assume it is not tax free at the state level? Is that a correct assumption?

The current 7 day SEC yield is 3.47%, I'm probably in the 22% federal bracket for 2023 due to RMDs, state income tax is 4.5%. So 22% + 4.5% = 26.5% total so 73.5% * 4.2% = 3.087% and it looks like VMSXX is a better option for me?

The mutual fund company will typically provide a list of the municipalities it invests in and the percentage for each. The portion invested in your home state would be "triple tax free" and the rest would only be Federally tax free.