Trying to determine Fed Tax exemption (%) for funds w/V funds

[eroscott]

TLDR
Looking for Vanguard funds that allow us to avoid federal taxes (exempt). These look like best candidates.

• VWALX Vanguard High-Yield Tax-Exempt Fund Admiral Shares
• VMSXX Vanguard Municipal Money Market Fund

Found some Vanguard text (prod sum) and PDF documents but not clear if they tell me 100% fed tax example

DETAILS: Outline to try to make it faster and easy to read/scan.
Situation:

• S1) Want to continue to stay under 400% ACA FPL for a couple more years so we need to manage our taxable income.
• S2) Planning some tax ramifications of
  • a) selling our IL home,
  • b) putting the ~$450K+ proceeds somewhere to earn something for a few years, and
  • c) build future long term NC home

Thoughts (rough initial)

• T1) move ~$450K+ to HYSA (Ally 4.35% currently). Aside: Joint acct allows $500K FDIC insured
• T2) this generates $1500 monthly interest (before taxes) which help pay for some of the monthly rent

Problem (taxable income):

• P1) the ~$1500+ per month federally taxable interest that at year-end would likely put us over the 400% ACA FPL limit

More Thoughts (main thread point)

• M1) move some of the ~$450K+ in the HYSA (Ally 4.35% currently)
• >> M2) move remainder to 1+ Vanguard funds that are entirely (mainly with best guess % - ie. 80%) federally tax exempt

Funds I've think are good candidates to avoid Federal taxes on gains

• F1) VWALX Vanguard High-Yield Tax-Exempt Fund Admiral Shares; 7.36% YTD after tax
  URL: https://investor.vanguard.com/investment-products/mutual-funds/profile/vwalx
  Fuzzy text: "This low-cost municipal bond fund seeks to provide a high level of federally tax-exempt income and typically appeals to investors in higher tax brackets."
• F2) VMSXX Vanguard Municipal Money Market Fund; 3.06% YTD after tax
  URL: https://investor.vanguard.com/investment-products/mutual-funds/profile/vmsxx
  Fuzzy text: "Investors in a higher tax bracket who have a short-term savings goal and seek a competitive tax-free yield may wish to consider this option."
• F3) Ally taxes: 4.35% * (100%-12%); 3.83% after tax

Taxabilty question:

• T1) This document does say 100% - "Federal tax treatment. The tax-exempt interest dividends are 100% exempt from federal income tax"
  and in Table 2 (page 2) it includes columns for 'Municipal Money Market Fund' & 'High-Yield Tax-Exempt Fund' implying that this document is relavent to both of those F1 & F2 funds (?)
  Title: Income by state for Vanguard municipal bond funds, Tax-Managed Balanced Fund (PDF)
  URL: https://personal1.vanguard.com/pdf/INBST_2023.pdf
• T2) This document I thought would be the go to for federal tax % exemption but I don't see those funds:
  Title: U.S. government obligations income information
  URL: https://personal1.vanguard.com/pdf/USGOIN_2023.pdf

 

[RunningBum]

I think even though those funds are exempt from federal taxes, they count towards MAGI, which is used in ACA subsidy calculations. This is a big part of the M, Modified AGI. Verify for yourself.

Currently there is no ACA subsidy cliff, so staying short of 400% FPL is not nearly so critical for the subsidy. It may come back in 2026, but you mention "a couple more years" so it may not be worth jumping through hoops to stay below 400%.

 

[SevenUp]

I think even though those funds are exempt from federal taxes, they count towards MAGI, which is used in ACA subsidy calculations.

Yes.

eroscott, see MAGI for Affordable Care Act purposes.

 

[eroscott]

I think even though those funds are exempt from federal taxes, they count towards MAGI, which is used in ACA subsidy calculations. This is a big part of the M, Modified AGI. Verify for yourself.

Currently there is no ACA subsidy cliff, so staying short of 400% FPL is not nearly so critical for the subsidy. It may come back in 2026, but you mention "a couple more years" so it may not be worth jumping through hoops to stay below 400%.

Yes.
eroscott, see MAGI for Affordable Care Act purposes.

Well Son of a Biscuit!

Thank you both for your quick response. It appears I've wasted quite a few brain cells researching, looking into this, spreadsheeting, and trying to write an understandable post! Egads. Well it always could be worse and I'm lucky overall!

I do see information on the subsidy cliff being turned into a slope. Thx.
You are right that we may be OK (slope) for 2024 & 2025 and just have to pay up in 2026.
https://thefinancebuff.com/stay-under-obamacare-premium-subsidy-cliff.html

 

[Sunset]

Buy BRK.B

No dividends, no capital gain distributions. Tax free until you decide to sell and then it qualifies for the Long Term Capital Gain tax rates currently at: 0%, 15%, 20%

 

[eroscott]

Buy BRK.B

No dividends, no capital gain distributions. Tax free until you decide to sell and then it qualifies for the Long Term Capital Gain tax rates currently at: 0%, 15%, 20%

Since this is for our next home it seems like it would be a little risky to do stock investing. I would think you'd want more reasonable low risk but modest returns. Unless I'm missing something.