What is best form for cash for the yearly budget?

[UpQuark]

Although I've been retired a couple years, this is the first year I needed to sell some stock to accumulate cash for my anticipated annual needs.

I was planning to keep most of the cash in MM core position and part in short Treasuries.

But it looks like the MM earnings are 'ordinary dividends' so taxed I guess as income for both federal and state, but looks like Treasuries pay 'interest' that is taxed as income for federal but not taxed by my state.

So does it make sense to keep all my annual 'cash' bucket in Treasuries and just sell them as needed on the secondary market, or maybe better keep in short one to 6 month treasuries that are maturing regularly?

I expect to need to withdraw the money as uneven lumps (like to pay for a cruise).

Are there other options to keep 'cash' that would be useful?

 

[Al18]

A saying that I’ve seen a few times - don’t let the tax tail wag the dog. Your plan sounds fine to me.

 

[Out-to-Lunch]

You could keep the funds in a US Treasury-based MM. I use VUSXX.

 

[FI_RElater]

You could keep the funds in a US Treasury-based MM. I use VUSXX.

"Ding...Ding"

 

[DrRoy]

My state tax is low and I use a money market fund for the higher rate.

 

[Koolau]

Just like not worrying too much about taxes, getting the last dollar of interest has never been our "thing." We do have MM at VG but we keep a fair amount in the check book. I know it's inefficient (interest wise) but (until recently) it cost us very little in interest. These days, I'm looking more closely at MMs or short term CDs for money that likely will be spent by year's end. I no longer obsess over such things (not that you're obsessing - sorry!) YMMV

 

[ShokWaveRider]

Just like not worrying too much about taxes, getting the last dollar of interest has never been our "thing." We do have MM at VG but we keep a fair amount in the check book. I know it's inefficient (interest wise) but (until recently) it cost us very little in interest. These days, I'm looking more closely at MMs or short term CDs for money that likely will be spent by year's end. I no longer obsess over such things (not that you're obsessing - sorry!) YMMV

You have worked for it. Perhaps like us you keep a decent amount in checking, so it is there when you need it.

We do not sweat the small stuff anymore, scrimping for every possible bit of interest and mitigating every little bit of Taxes are definitely the small stuff.

 

[Sunset]

OP - Your plan of MM and treasuries is fine.

I do that and keep more than 2 year's spending in what I call "cash".

No need to limit yourself to just 1 year, that will avoid needing to sell stocks during a market crash..

 

[mrfeh]

Just like not worrying too much about taxes, getting the last dollar of interest has never been our "thing." We do have MM at VG but we keep a fair amount in the check book. I know it's inefficient (interest wise) but (until recently) it cost us very little in interest. These days, I'm looking more closely at MMs or short term CDs for money that likely will be spent by year's end. I no longer obsess over such things (not that you're obsessing - sorry!) YMMV

+1

OP - determine the $ difference between the options you're considering. It may not amount to much.

For example, the difference in my state for keeping $50K in a state tax exempt fund vs one that isn't exempt is about $50 for the year.

 

[audreyh1]

You could keep the funds in a US Treasury-based MM. I use VUSXX.

+1

 

[Winemaker]

I use a tax free money market fund FTEXX.

 

[Sunset]

For me, the vanguard settlement fund is ~50% tax free to the State.

So that and Treasuries on $100K saves me ~$375 in taxes to the State. IL tax rate is ~5%

Still when I buy Treasuries, I look sometimes and if a CD is paying a higher percentage rate that more than makes up for the State tax cost, I'll buy that and the State and I just share the extra interest.

 

[H2ODude]

Just like not worrying too much about taxes, getting the last dollar of interest has never been our "thing." We do have MM at VG but we keep a fair amount in the check book. I know it's inefficient (interest wise) but (until recently) it cost us very little in interest. These days, I'm looking more closely at MMs or short term CDs for money that likely will be spent by year's end. I no longer obsess over such things (not that you're obsessing - sorry!) YMMV

I'm with you. I've always known that I was losing interest in my credit union checking account, which is where my pension and SS lands. Most utilities auto pay out of there as well as the Fido CC. I started to figure out how I could land most of the money in Fidelity (~5%) since we probably average about $8-10k in the credit union. But, that would mean changing how I've done things for decades and remembering to move money by certain times. Plus, I've always sort of had a wall between Fidelity and the CU; Investments in Fido and spending and budgeting in CU. Too old to change. I know there's probably several hundred dollars a year to be made by changing, but it's not worth it to me to change my pattern.