VMFXX vs VUSXX

[Midpack]

Just picked up in a YT video the difference between the two. The yields are almost the same, VUSXX actually has a slightly lower ER. What got my attention was the difference in government obligations, which has some tax reduction value in many states. In 2024 VMFXX was 59.87% GO and VUSXX was 100%. VMFXX is the default sweep option for Vanguard and evidently you can't change that, but I can easily move my VMFXX holdings to VUSXX, in normal times they just sit in reserve. Just so happens I keep almost all our cash in our taxable sweep account, so the change will save me an additional couple hundred on state taxes. Why not? Of course if you don't hold any significant amount in a Vanguard sweep account, it's probably not worthwhile.

 

[Gumby]

After having been burned in the past by the weird CT rule about tax exemption for US treasury holdings, after any transaction that results in money increasing in my VMFXX sweep account, I move it into VUSXX until I decide to reinvest, then I move it back one day and trade the next. I don't see a downside other than that one day delay, and I don't invest in things where one day really matters.

 

[Midpack]

^^^ You may have just answered one of my questions. If I want to buy treasuries, I can't just sell VUSXX and buy a treasury - I'll need to move the funds back to VMFXX? Not a big deal, just wondering.

 

[Gumby]

^^^ You may have just answered one of my questions. If I want to buy treasuries, I can't just sell VUSXX and buy a treasury - I'll need to move the funds back to VMFXX? Not a big deal, just wondering.

That's the way I have been doing it, because, in my experience, mutual fund transactions always occur after the trading day closes and at the closing price, so the sale proceeds sent to VMFXX sweep account are necessarily not available for trading that day. Although, to be honest, I have not tried to enter a buy order for something else on the same day I enter the sell order for VUSXX, so it might work.

 

[RunningBum]

I move most of my cash to VUSXX for the same reasons as in the OP.

I just started a treasury buy transaction to see if I had to move it back to VMFXX. The first page is "Select an account for your transaction" and it shows "Funds available to trade". For my taxable account this number is big, letting me buy up to around 50% of my portfolio balance, so I don't have to move money back to VMFXX to buy. For my IRAs it only lets me use what's in the sweep account, VMFXX.

Going right up to the "Submit" page, it never asks me where the money is coming from. So I guess it'd be on margin and I'd have to sell/move VUSXX to avoid using my margin. Doing these on the same day probably works as I've never seen margin interest charges and I have done this before. I just don't remember exactly what I did, and I probably mostly bought when a CD or Tbill matured and put in VMFXX and I quickly reinvested.

I don't know what happens if you don't have margin enabled. It probably only lets you buy up to what you have in VMFXX/sweep.

 

[mrfeh]

Bummer about the machinations necessary for a buy at Vanguard. Fidelity makes this seamless.

 

[Midpack]

Bummer about the machinations necessary for a buy at Vanguard. Fidelity makes this seamless.

Seamless at Vanguard if your sweep account is VMFXX, noted in the OP…most members are.

 

[mrfeh]

Seamless at Vanguard if your sweep account is VMFXX, noted in the OP…most members are.

Yeah, at Fidelity if my primary sweep account doesn't have enough $ in it for something, they automatically pull from my other money market fund (with better tax treatment), so I don't have to make sure there's enough in the default sweep.

 

[Graybeard]

After having been burned in the past by the weird CT rule about tax exemption for US treasury holdings, after any transaction that results in money increasing in my VMFXX sweep account, I move it into VUSXX until I decide to reinvest, then I move it back one day and trade the next. I don't see a downside other than that one day delay, and I don't invest in things where one day really matters.

I'm confused. Are you saying that the interest from VUSXX in a taxable account is not taxable by Connecticut? VMFXX invests in a high ration of repros (is it more than 50%?) therefore the interest from VMFXX is taxable in CT. For this reason I keep most of my "cash" in T bills.

 

[Gumby]

I'm confused. Are you saying that the interest from VUSXX in a taxable account is not taxable by Connecticut?.....

Yes, that is exactly what I am saying.

This is the rule for Connecticut taxation of US obligations in a mutual fund

MUTUAL FUNDS QUALIFIED TO PAY EXEMPT-INTEREST DIVIDENDS: If, at the close of each quarter of a mutual fund's taxable year, at least 50% of the value of the fund's assets consist of state and municipal government obligations described in 26 U.S.C. §103(a), that portion of the fund's distribution to its shareholders that is attributable to those obligations will qualify as exempt-interest dividends, as defined in 26 U.S.C. §852(b)(5). Exempt-interest dividends are properly not includable in federal gross income.

VUSXX dividends are NOT taxable by Connecticut because it is always 100% treasuries, no repos. VMFXX met the Connecticut rule during 1984, 2024 so 59.87% of the VMFXX dividends were not taxable by CT. However, it did NOT meet the rule in 1983 2023 (because it was only 49%) and ALL the VMFXX dividends for 1983 2023 were taxable by the State of CT.


So if you want to keep cash in a taxable account in a federal money market mutual fund at Vanguard and you live in Connecticut, choose VUSXX. Sadly, the default sweep/settlement account is VMFXX, so you have to actively manage it.

Edit to add: You may find this link helpful

https://investor.vanguard.com/content/dam/retail/publicsite/en/documents/taxes/USGO_012025.pdf

VMFXX is on page 3, VUSXX is on page 7.


Edited to fix my brain fart.

 

[Graybeard]

Thanks. I used to look at the settlement fund and VUSXX but since I wanted to buy T bills and I knew that interest would not be taxed by CT, I would move money from the settlement fund to buy a 4 week T bill and when it matured the money went back to the settlement fund and I'd buy another 4 week T bill. Having money in VUSXX meant I had to move the dollars to the settlement fund to be able to buy a T bill so I think I just decided to use the settlement fund.

I am confused by your mentioning 1984 and 1983, what does that have to do with today?

Also when I look at VMFXX on page 3 it says "Federal Money Market*† VMFXX 59.87%", isn't that more than the 50% to achieve the no tax here?
*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.
†This information applies to the Vanguard Federal Money Market Settlement Fund.

 

[G-Man]

Thanks. I used to look at the settlement fund and VUSXX but since I wanted to buy T bills and I knew that interest would not be taxed by CT, I would move money from the settlement fund to buy a 4 week T bill and when it matured the money went back to the settlement fund and I'd buy another 4 week T bill. Having money in VUSXX meant I had to move the dollars to the settlement fund to be able to buy a T bill so I think I just decided to use the settlement fund.

I am confused by your mentioning 1984 and 1983, what does that have to do with today?

Also when I look at VMFXX on page 3 it says "Federal Money Market*† VMFXX 59.87%", isn't that more than the 50% to achieve the no tax here?
*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.
†This information applies to the Vanguard Federal Money Market Settlement Fund.

Any rule like that for Virginia? In addition, what would be the equivalent fund at Fidelity?

 

[Gumby]

.....

I am confused by your mentioning 1984 and 1983, what does that have to do with today?

......

Sorry, I meant to write 2024 and 2023. Don't know what happened. I've gone back to fix it.

Yes, VMFXX met the test in 2024, so 59.87% of the dividend is deductible on my 2024 CT state return. It did not meet the test in 2023, however, coming in at only ~49%, so none of the VMFXX dividend was deductible on my CT return for 2023. The problem with VMFXX is that you can't know whether it will meet the test until after the year is over, so I try to minimize the amount I keep there and use VUSXX instead to hold my cash.

Any rule like that for Virginia? In addition, what would be the equivalent fund at Fidelity?

To my knowledge, it's only California, Connecticut, and New York. I don't know what is the equivalent at Fidelity, but I bet someone here does.

 

[mrfeh]

Any rule like that for Virginia? In addition, what would be the equivalent fund at Fidelity?

just google "does virginia tax us government interest"

 

[RunningBum]

Any rule like that for Virginia? In addition, what would be the equivalent fund at Fidelity?

No 50% rule. Virginia allows all govt obligation income in your taxable accounts to be subtracted from your income for state tax purposes. I've done it every year.

 

[G-Man]

No 50% rule. Virginia allows all govt obligation income in your taxable accounts to be subtracted from your income for state tax purposes. I've done it every year.

Great.. Just trying to figure out all the Fidelity govt. obligations mutual funds or ETFs.

Would SPAXX be one?

SPAXX - Fidelity ® Government Money Market Fund | Fidelity Investments

Analyze the Fund Fidelity ® Government Money Market Fund having Symbol SPAXX for type mutual-funds and perform research on other mutual funds. Learn more about mutual funds at fidelity.com.

fundresearch.fidelity.com

 

[Graybeard]

Sorry, I meant to write 2024 and 2023. Don't know what happened. I've gone back to fix it.

Yes, VMFXX met the test in 2024, so 59.87% of the dividend is deductible on my 2024 CT state return. It did not meet the test in 2023, however, coming in at only ~49%, so none of the VMFXX dividend was deductible on my CT return for 2023. The problem with VMFXX is that you can't know whether it will meet the test until after the year is over, so I try to minimize the amount I keep there and use VUSXX instead to hold my cash.


To my knowledge, it's only California, Connecticut, and New York. I don't know what is the equivalent at Fidelity, but I bet someone here does.

That's great to know, I just assumed in 2024 VMFXX interest was taxable. I do keep most of my cash in T bills cuz like you said you never know if it'll meet the criteria.

Yes, VMFXX met the test in 2024, so 59.87% of the dividend is deductible on my 2024 CT state return.

Deductible? Don't you mean not taxable? Never mind, apparently 59.87% of the interest is deductible, that seems odd vs not taxable but I know nothing about taxes other than I have to pay them!

 

[Gumby]

Deductible? Don't you mean not taxable? .....

When you fill out your form CT-1040, you start with federal AGI, then you have "Additions to Federal Gross Income" and "Subtractions from Federal Gross Adjusted Income" to get to "Connecticut Adjusted Gross Income". "Interest on State and Local Government Obligations Other Than Connecticut", to the extent it meets the 50% test, is one of the subtractions. I think of it as an above-the-line deduction, but technically it is "not taxable"

 

[Stormy Kromer]

I own a pile of different Vanguard Funds. I don't know them by their initials. Could we all call them by name instead of their initials ? For example "Vanguard Total Stock Index" instead of VG;poouhjfghf.

Thank you

 

[Gumby]

I own a pile of different Vanguard Funds. I don't know them by their initials. Could we all call them by name instead of their initials ? For example "Vanguard Total Stock Index" instead of VG;poouhjfghf.

Thank you

VMFXX is Vanguard Federal Money Market Fund and VUSXX is Vanguard Treasury Money Market Fund. But they are easily enough Googled by symbol alone.

 

[RunningBum]

It's a lot less community effort for the person who introduces the symbol to type it out than for many readers to google the symbol. I'm guilty of not doing this too, but I try to remember to type things out.

 

[NatureBoy]

It's worth noting that VUSXX is not always 100% U. S Treasuries. In fact, in 2023 it was only about ~80% because of liquidity-driven issues. Bogleheads posts at the time suggest movement to more repos (which are not state-tax exempt) for strategic (additional income) reasons.

 

[Graybeard]

It's worth noting that VUSXX is not always 100% U. S Treasuries. In fact, in 2023 it was only about ~80% because of liquidity-driven issues. Bogleheads posts at the time suggest movement to more repos (which are not state-tax exempt) for strategic (additional income) reasons.

Interesting! So it seems the only thing that I can be sure that this state (CT) won't tax is the interest on treasuries, VMFXX and VUSXX are unpredictable from year to year. My tax bracket is not high enough to make tax free munis a good choice.

I have another T bill maturing tomorrow, I want to about 95% of this money to the Total Stock Market Index MF at Vanguard. I know it is market timing but I just can't do that until there is a significant drop in the stock market which would be painful but it would give me the opportunity. I know for a fact the day I move that money cuz I am tired of waiting like in June or October, the market will drop.

 

[Harris4crna]

I currently don't pay state tax, but when retire out the military it seems I should move my money to VUSXX from VMFXX. I also have a large cash balance in VMRXX. Should I not?

 

[Midpack]

Anyone know when VUSXX dividends are paid out? VMFXX pays out monthly, evidently VUSXX does not. I assume quarterly, end of quarter or similar to equity/bond index funds (late Mar, Jun, Sept, Dec)? Not a problem, just for tax planning. [edit] I bought VUSXX in mid February and there was no distribution, that's why I am asking.