VMFXX or VUSXX

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aragorn1
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VMFXX or VUSXX

Post by aragorn1 »

Hi,

I have some cash parked in the VMFXX (Vanguard Federal Money Market Fund). I may use it anytime in the coming months. I am thinking of moving all of it to VUSXX. Could you some please advice which one is better - VMFXX or VUSXX ?
shariron
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Re: VMFXX or VUSXX

Post by shariron »

These funds are so similar, there would be a negligible difference to holding one vs. the other.


Vanguard Treasury Money Market Vanguard Federal Money Mkt Fund
1-year 1.50% 1.55%
3-year 0.66% 0.67%
5-year 1.18% 1.18%
10-year 0.70% 0.71%
SEC yield 4.33% 4.32%
Topic Author
aragorn1
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Re: VMFXX or VUSXX

Post by aragorn1 »

Thanks for the reply. I am in CA. Is there a difference between taxes from these funds for CA residents ?
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retired@50
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Re: VMFXX or VUSXX

Post by retired@50 »

aragorn1 wrote: Fri Feb 03, 2023 10:16 pm Thanks for the reply. I am in CA. Is there a difference between taxes from these funds for CA residents ?
Yes, there is a difference. The interest from VUSXX wouldn't be taxable by CA, so you'd save the state income taxes on the interest earned.

More details about Vanguard funds that contain US Government Obligations here: https://www.vanguard.com/pdf/USGOIN_2023.pdf

Regards,
If liberty means anything at all it means the right to tell people what they do not want to hear. -George Orwell
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Mel Lindauer
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Re: VMFXX or VUSXX

Post by Mel Lindauer »

Since the Federal MM only holds 37.7% in Treasuries, it may not be free from state taxation in all states with income taxes.
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Hogan773
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Re: VMFXX or VUSXX

Post by Hogan773 »

Can someone note which if any of the Non-Muni Money Market funds (like the ones discussed here) would be exempt from Illinois state taxes?

I am trying to decide if I should roll out of my Muni MMF (Tax Exempt MMF) into one of the taxables because their distribution yields are higher right now. I am just learning about this seasonality in SEC yield of the Muni MMF
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Artsdoctor
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Re: VMFXX or VUSXX

Post by Artsdoctor »

aragorn1 wrote: Fri Feb 03, 2023 10:16 pm Thanks for the reply. I am in CA. Is there a difference between taxes from these funds for CA residents ?
You'll almost certainly get a better after-tax return with VUSXX. You should anticipate paying CA tax on all of the income from VMFXX. You can't guarantee that 100% of VUSXX income will be free of state tax but most of it will be.
curious george
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Re: VMFXX or VUSXX

Post by curious george »

I was having trouble figuring out how much treasuries a fund has to hold in VA for it to be state tax free ?
Can anyone point me in the right direction?
IRouteIP
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Re: VMFXX or VUSXX

Post by IRouteIP »

Pennsylvania state income tax is 3.07%. To compare against VUSXX, would "current rate" * (1+.0307) = the rate to beat?
laketrout
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Re: VMFXX or VUSXX

Post by laketrout »

curious george wrote: Sat Feb 04, 2023 11:11 am I was having trouble figuring out how much treasuries a fund has to hold in VA for it to be state tax free ?
Can anyone point me in the right direction?
From: https://www.tax.virginia.gov/laws-rules ... ner/94-281

"The department recognizes that interest or dividends on exempt U.S. or Virginia obligations received by a mutual fund and passed through to the shareholders in qualifying distributions will retain their exempt status in the hands of the mutual fund shareholders. However, as provided in VR 630-2-322, when taxable income in commingled with exempt income, all income is presumed to be taxable unless the portion of income which is exempt from Virginia income tax can be determined with reasonable certainty and substantiated. "

Here is how I understand the statement above (but I am not an expert):
It seems like unless you can identify how much of its interest/dividends is from US Treasury obligations, then all of it would be taxable in Virginia. However, for some funds I have owned in the past I remember seeing a percentage of income from U.S. obligations listed in some additional information that came with the 1099. I don;t know if all funds do that. If you can identify what percentage of income is from U.S. Obligations, then it would seem that the corresponding amount can be subtracted from Virginia income.
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retired@50
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Re: VMFXX or VUSXX

Post by retired@50 »

IRouteIP wrote: Sat Feb 04, 2023 9:25 pm Pennsylvania state income tax is 3.07%. To compare against VUSXX, would "current rate" * (1+.0307) = the rate to beat?
The phrasing of your question is a little confusing to me, but if a Pennsylvania resident invests in VUSXX, they'd pay tax on the interest to the Federal government at their marginal tax rate. The PA state tax doesn't really factor into the equation because that particular fund isn't subject to state income taxes because the fund contains US Treasury products.

To calculate your own rate of interest that you'd get to keep for the fund, you'd subtract your marginal tax rate from 1.0, then multiply that number times the SEC 7 day yield. ( 1.0 - 0.22) X 4.33% = 3.3774%. So, 3.3774% is the interest you'd actually get to keep by investing in VUSXX, if you're in the 22% Federal bracket.

Regards,
If liberty means anything at all it means the right to tell people what they do not want to hear. -George Orwell
IRouteIP
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Re: VMFXX or VUSXX

Post by IRouteIP »

retired@50 wrote: Sat Feb 04, 2023 11:37 pm
The phrasing of your question is a little confusing to me, but if a Pennsylvania resident invests in VUSXX, they'd pay tax on the interest to the Federal government at their marginal tax rate. The PA state tax doesn't really factor into the equation because that particular fund isn't subject to state income taxes because the fund contains US Treasury products.
Thanks for the response. To clarify, I am figuring that Federal tax applies to both VMFXX and VUSXX. State tax is the variable. Looking at this again, I think I should be subtracting the PA 3.07% from the VMFXX yield instead of adding it to VUSXX.

Basically, looking to see if PA's 3.07% tax would justify using VUSXX over VMFXX. I'm think in the end the difference may be pennies.
evelynmanley
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Re: VMFXX or VUSXX

Post by evelynmanley »

IRouteIP wrote: Sun Feb 05, 2023 7:38 am
retired@50 wrote: Sat Feb 04, 2023 11:37 pm
The phrasing of your question is a little confusing to me, but if a Pennsylvania resident invests in VUSXX, they'd pay tax on the interest to the Federal government at their marginal tax rate. The PA state tax doesn't really factor into the equation because that particular fund isn't subject to state income taxes because the fund contains US Treasury products.
Thanks for the response. To clarify, I am figuring that Federal tax applies to both VMFXX and VUSXX. State tax is the variable. Looking at this again, I think I should be subtracting the PA 3.07% from the VMFXX yield instead of adding it to VUSXX.

Basically, looking to see if PA's 3.07% tax would justify using VUSXX over VMFXX. I'm think in the end the difference may be pennies.
These threads might be helpful:

Re: Vanguard Money Market Funds - Differences in Returns?
viewtopic.php?p=7068843#p7068843

Tax Equivalent Money Market Yield
viewtopic.php?p=6977301&hilit=VUSXX#p6977301
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retired@50
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Re: VMFXX or VUSXX

Post by retired@50 »

IRouteIP wrote: Sun Feb 05, 2023 7:38 am
retired@50 wrote: Sat Feb 04, 2023 11:37 pm
The phrasing of your question is a little confusing to me, but if a Pennsylvania resident invests in VUSXX, they'd pay tax on the interest to the Federal government at their marginal tax rate. The PA state tax doesn't really factor into the equation because that particular fund isn't subject to state income taxes because the fund contains US Treasury products.
Thanks for the response. To clarify, I am figuring that Federal tax applies to both VMFXX and VUSXX. State tax is the variable. Looking at this again, I think I should be subtracting the PA 3.07% from the VMFXX yield instead of adding it to VUSXX.

Basically, looking to see if PA's 3.07% tax would justify using VUSXX over VMFXX. I'm think in the end the difference may be pennies.
I do indeed prefer the idea of subtracting what you won't get, or said another way, focus on what you get to keep.

For VMFXX you'd subtract both marginal rates from 1.0. So, ( 1.0 - 0.22 - 0.0307 ) X VMFXX SEC Yield.

Regards,
If liberty means anything at all it means the right to tell people what they do not want to hear. -George Orwell
IRouteIP
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Re: VMFXX or VUSXX

Post by IRouteIP »

Thank you both!

Evelynmanley, the spreadsheet linked in Vanguard Money Market Funds - Differences in Returns? was very helpful and was basically what I was looking for.

https://www.gebele.com/charts-and-graphs/mm-yields

In my case it looks like VUSXX would squeak out 0.05% ahead at current rates.
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