I'm in California and am wondering if I should go into the Vanguard
Prime Money Market or the California Tax Exempt Money Market?
What should be the determining factor?
TLS wrote:
>
> I'm in California and am wondering if I should go into the Vanguard
> Prime Money Market or the California Tax Exempt Money Market?
>
> What should be the determining factor?
After-tax return (including AMT if applicable).
Bottom line is that the Calif. MMF comes out better given the current
yields. The rest of this post explains why.
Right now, Vanguard's Calif. Tax-Exempt MMF's 7 day average yield is
1.92%. We need to compare that with the after-tax yield of Vanguard's
Prime fund (the pre-tax yield is currently 2.46%).
For someone with annual ordinary income of $58.5K, the marginal federal
tax rate is 25% (regardless of filing status).
(See schedules on last page.)
The California marginal tax rate at this income level is 9.3%.
That makes the combined tax rate:
25% + 9.3% = 34.3% (if you don't itemize)
25% + 9.3% - 25% * 9.3% = 31.975% (if you itemize)
(The latter is because you get to deduct your state income tax from your
federal return; if you tax the sales tax deduction instead, then use the
"don't itemize" calculation.)
This means that you pay about 1/3 in income taxes, and get to keep
around 2/3. (More precisely, you keep 1 - 34.3%, or 1 - 31.975%)
That means that the after-tax value of Prime fund to you is:
2.46% * (1 - 34.3%) = 1.61% (if you don't itemize)
2.46% * (1 - 31.975%) = 1.67895% (if you itemize)
Clearly the California MMF (at 1.92% yield) is better.
If you are in a higher tax bracket, California MMF comes out even better
(since the federal taxes take away even more from the taxable fund). If
you are in a lower bracket, you may need to recalculate.
AMT will make things more complicated, but the result will be the same
(Calif. MMF better, at least for now).
--
Mark Freeland
For a while last year, the Vanguard tax exempt money market funds were
actually paying MORE than their taxable counterparts.
"Mark Freeland" <> wrote in message
news:
> TLS wrote:
>>
>> I'm in California and am wondering if I should go into the Vanguard
>> Prime Money Market or the California Tax Exempt Money Market?
>>
>> What should be the determining factor?
>
> After-tax return (including AMT if applicable).
>
> Bottom line is that the Calif. MMF comes out better given the current
> yields. The rest of this post explains why.
>
> Right now, Vanguard's Calif. Tax-Exempt MMF's 7 day average yield is
> 1.92%. We need to compare that with the after-tax yield of Vanguard's
> Prime fund (the pre-tax yield is currently 2.46%).
>
>
>
> For someone with annual ordinary income of $58.5K, the marginal federal
> tax rate is 25% (regardless of filing status).
>
> (See schedules on last page.)
>
> The California marginal tax rate at this income level is 9.3%.
>
>
> That makes the combined tax rate:
> 25% + 9.3% = 34.3% (if you don't itemize)
> 25% + 9.3% - 25% * 9.3% = 31.975% (if you itemize)
>
> (The latter is because you get to deduct your state income tax from your
> federal return; if you tax the sales tax deduction instead, then use the
> "don't itemize" calculation.)
>
> This means that you pay about 1/3 in income taxes, and get to keep
> around 2/3. (More precisely, you keep 1 - 34.3%, or 1 - 31.975%)
>
> That means that the after-tax value of Prime fund to you is:
> 2.46% * (1 - 34.3%) = 1.61% (if you don't itemize)
> 2.46% * (1 - 31.975%) = 1.67895% (if you itemize)
>
> Clearly the California MMF (at 1.92% yield) is better.
>
> If you are in a higher tax bracket, California MMF comes out even better
> (since the federal taxes take away even more from the taxable fund). If
> you are in a lower bracket, you may need to recalculate.
>
> AMT will make things more complicated, but the result will be the same
> (Calif. MMF better, at least for now).
> --
> Mark Freeland
>
If it is a close call, also consider some of those other versions of
moneymarket that focus on US gov't obligations, which should be mostly
state exempt (although not fed exempt). In fact, all kinds of funds
already carry a few percent of these which is a major pain to account
for and deduct.
dumbstruck wrote:
>
> If it is a close call, also consider some of those other versions of
> moneymarket that focus on US gov't obligations, which should be mostly
> state exempt (although not fed exempt). In fact, all kinds of funds
> already carry a few percent of these which is a major pain to account
> for and deduct.
Remembering that the question was about California funds, the "few
percent" is not a problem. California, like New York and a few other
states, does not allow you to deduct the income that is state-exempt if
it is less than 50% of the fund's income.
--
Mark Freeland
"TLS" <> wrote in message
news:
> I'm in California and am wondering if I should go into the Vanguard
> Prime Money Market or the California Tax Exempt Money Market?
>
> What should be the determining factor?
Not to throw a wrench in the works, but if you're comparing with Vanguard
Prime, won't it make more sense to go with (say) ING Direct (2.8%). A real
bank with a track record over years of paying you high rates in an FDIC
insured account with no minimums (unlike Vanguard)! Not that I don't have a
vested interest to give you a $25 bonus ().
Russell
Russell wrote:
>
> "TLS" <> wrote in message
> news:
> > I'm in California and am wondering if I should go into the Vanguard
> > Prime Money Market or the California Tax Exempt Money Market?
> >
> > What should be the determining factor?
>
> Not to throw a wrench in the works, but if you're comparing with
> Vanguard Prime, won't it make more sense to go with (say) ING Direct
> (2.8%). A real bank with a track record over years of paying you
> high rates in an FDIC insured account with no minimums (unlike
> Vanguard)! Not that I don't have a vested interest to give you a
> $25 bonus ().
The numbers and other factors still come out in favor of Vanguard.
The after-tax return of ING direct would be about 2/3 of the 2.8% (see
my previous post), or about 1.9%. Vanguard's California TE MMF is
currently yielding more, at 2.0%. As a MMF, its yield will rise
automatically as the yield of the short term paper in its portfolio
rises; ING or any bank, in contrast, will only raise rates sporadically
(i.e. lag).
Vanguard, like most MMFs, allows you to write checks. ING requires you
to perform an ACH transfer (taking a couple of days) into another bank
with a checking account in order to write a check. This delay is
significant because of Check21. Not to mention the inconvenience.
According to another poster, there appears to be a one day delay in
investing in Vanguard funds if one does this by EFT (say from ING).
There is no delay if one invests from a Vanguard MMF.
One may reasonably assume that the $3K minimum is not an issue for the
OP, since the question asked was to compare different accounts all with
this minimum. While there always is the possibility of a MMF "breaking
a buck", there has been only one fund that ever did so, and Vanguard is
one of the most conservatively managed fund families around. So while
FDIC insurance is a theoretical advantage, pragmatically its value is
close to nil.
--
Mark Freeland
"Russell" <> wrote
Not that I don't have a
> vested interest to give you a $25 bonus ().
>
> Russell
Russ, I got the check in the mail, shreded it. Didn't have to benefit a
spammer (that's youu, Russ).
Why settle for 2.8% when you can get 3.25% FDIC insured?
I don't get anything for posting this.
"Ed" <> wrote in message
news:
>
> "Russell" <> wrote
>
> Not that I don't have a
>> vested interest to give you a $25 bonus ().
>>
>> Russell
>
> Russ, I got the check in the mail, shreded it. Didn't have to benefit a
> spammer (that's youu, Russ).
>
> Why settle for 2.8% when you can get 3.25% FDIC insured?
>
>
> I don't get anything for posting this.
Just that ING has a track record over many many years as opposed to Emigrant
which is trying to gather a customer base. If you go to my web-page there's
a link there to a chart from ING's web-site which goes all the way to 2000.
Of course, past performance is no guarantee ... but the point is ING has
stayed solvent offering such rates. From Emigrant's web-site "Emigrant
Direct is committed to offering the 3.25% APY through 2005.". Ideally, a
person would put their money where the return is the highest and move it
around when it was no longer the highest, but most people tend not to do
that - for them it's probably beneficial to choose someone who has a track
record of high rates over many years. As I clearly mention in my posting
and on the webpage (), I do have a vested
interest.
Russell
>
"Russell" <> wrote
> Just that ING has a track record over many many years as opposed to
> Emigrant which is trying to gather a customer base.
So what? The money is FDIC insured.
I don't know where you're from, but here in the northeast, 3.25% is better
than 2.8%.
It's 16% better. Anyone that would pick ING over Emigrant-Direct is missing
something.
Please take your spam elsewhere.
"Ed" <> wrote in message
news:
>
> "Russell" <> wrote
>
>> Just that ING has a track record over many many years as opposed to
>> Emigrant which is trying to gather a customer base.
>
> So what? The money is FDIC insured.
> I don't know where you're from, but here in the northeast, 3.25% is better
> than 2.8%.
> It's 16% better. Anyone that would pick ING over Emigrant-Direct is
> missing something.
>
That is a matter of opinion. You make it sound as if they always offer
these rates. I was stating the facts - ING has a track record to 2000. As
I previously stated: "From Emigrant's web-site "Emigrant Direct is
committed to offering the 3.25% APY through 2005.". Ideally, a person would
put their money where the return is the highest and move it around when it
was no longer the highest, but most people tend not to do that - for them
it's probably beneficial to choose someone who has a track
record of high rates over many years. It's not one-size fits all (not even
in the norheast) - some people have the time and energy to close and open
accounts at the drop of a hat. Others (even in the norheast), prefer to
stick with a proven performer. As I clearly mention in my original posting
I do have a vested interest - note no link to that is included in this
posting which is a meant to be a rebuttal to the point you made.
Russell
"Russell" <> wrote
> That is a matter of opinion. You make it sound as if they always offer
> these rates.
Most likely they will trend higher.
> I was stating the facts - ING has a track record to 2000.
So what?
> As I previously stated: "From Emigrant's web-site "Emigrant Direct is
> committed to offering the 3.25% APY through 2005.".
What will ING's rates be on 12/31/2005?
> Ideally, a person would put their money where the return is the highest
> and move it around when it was no longer the highest, but most people tend
> not to do that - for them it's probably beneficial to choose someone who
> has a track
> record of high rates over many years.
It's lower than Emigrant-Direct. What part of that do you not understand?
> It's not one-size fits all (not even in the norheast) - some people have
> the time and energy to close and open accounts at the drop of a hat.
> Others (even in the norheast), prefer to stick with a proven performer.
What evidence do you have that Emigrant-Direct will ever have lower rates
than ING?
What evidence do you have that ING will pay higher rates?
> As I clearly mention in my original posting I do have a vested interest -
> note no link to that is included in this posting which is a meant to be a
> rebuttal to the point you made.
You lose, go away.
If ING has a no spam policy I will turn you in the next time I see your
sorry ass posting here.
If you purchase Quicken, ING will give you $50 (!) to open an account!
No kidding! And the interest rate is currently 3%.
Heather
Ed, I picked ING over Emigrant to get the $50 offer that came with
Quicken - and I hope I'm not missing something. (Haha!) ING has no
fees - even for a $0 balance account - so I will go with ING for a few
months to collect that cool fifty and then possibly move over to
Emigrant. Just a thought.
Heather
"Heather" <> wrote
> Ed, I picked ING over Emigrant to get the $50 offer that came with
> Quicken - and I hope I'm not missing something. (Haha!) ING has no
> fees - even for a $0 balance account - so I will go with ING for a few
> months to collect that cool fifty and then possibly move over to
> Emigrant. Just a thought.
>
> Heather
My wife is always coming home from the mall telling me how much she saved.
"Ed" <> wrote in message
news:
>
> "Russell" <> wrote
>
>> That is a matter of opinion. You make it sound as if they always offer
>> these rates.
>
> Most likely they will trend higher.
>
Since interest rates appear to be headed in that direction that would be a
reasonable conclusion to draw for a company with a track record like ING.
>> I was stating the facts - ING has a track record to 2000.
>
> So what?
>
In the case of interest bearing investments, I have a strong preference to
invest in a bank / mutual fund which has a definite record of high returns.
If the account is FDIC insured, risk assessment becomes irrelevant to me.
ING is such a bank.
>> As I previously stated: "From Emigrant's web-site "Emigrant Direct is
>> committed to offering the 3.25% APY through 2005.".
>
> What will ING's rates be on 12/31/2005?
>
One cannot fortell the future, but based on their track record to 2000, I
think it would be safe to conclude that ING's rates would be higher than the
95+% of banks with similar savings accounts or taxable money market funds
(whether bank or mutual company based).
>> Ideally, a person would put their money where the return is the highest
>> and move it around when it was no longer the highest, but most people
>> tend not to do that - for them it's probably beneficial to choose someone
>> who has a track
>> record of high rates over many years.
>
> It's lower than Emigrant-Direct. What part of that do you not understand?
>
>> It's not one-size fits all (not even in the northeast) - some people have
>> the time and energy to close and open accounts at the drop of a hat.
>> Others (even in the northeast), prefer to stick with a proven performer.
>
I understand quite clearly that E-D is higher than ING at present.
> What evidence do you have that Emigrant-Direct will ever have lower rates
> than ING?
Nor do we have any evidence that E-D will always have higher rates than ING.
Only time will tell. If you have any evidence to the contrary I'm sure lots
of folk would love to know. Unlike ING they don't have a track record to
2000. Care to quote the average rates E-D offered their customers for
savings accounts in 2001, 2002, 2003 etc? You can get ING's from their
web-site graph.
> What evidence do you have that ING will pay higher rates?
>
I'm going by their track record to 2000. Once they change and are not
consistently higher than the 95+% of banks / mutual funds money market
accounts, I'll switch. If E-D in mid-2006 still appears to be the leader by
a quarter of a percentage point or more, I'll switch.
>> As I clearly mention in my original posting I do have a vested interest -
>> note no link to that is included in this posting which is a meant to be a
>> rebuttal to the point you made.
>
> You lose, go away.
That's your opinion - enjoy our freedom of speech.
> If ING has a no spam policy I will turn you in the next time I see your
> sorry ass posting here.
>
My, my, nasty language.
"Russell" <> wrote
> "Ed" <> wrote in message
>> "Russell" <> wrote
>>
>>> That is a matter of opinion. You make it sound as if they always offer
>>> these rates.
>>
>> Most likely they will trend higher.
>>
>
> Since interest rates appear to be headed in that direction that would be a
> reasonable conclusion to draw for a company with a track record like ING.
Most likely for all of them. Nothing special about ING.
>
>>> I was stating the facts - ING has a track record to 2000.
>>
>> So what?
>>
>
> In the case of interest bearing investments, I have a strong preference to
> invest in a bank / mutual fund which has a definite record of high
> returns. If the account is FDIC insured, risk assessment becomes
> irrelevant to me. ING is such a bank.
So is Emigrant-Direct.
>>> As I previously stated: "From Emigrant's web-site "Emigrant Direct is
>>> committed to offering the 3.25% APY through 2005.".
>>
>> What will ING's rates be on 12/31/2005?
>>
>
> One cannot fortell the future, but based on their track record to 2000, I
> think
You think? What kind of guarantee is that?
>>> Ideally, a person would put their money where the return is the highest
>>> and move it around when it was no longer the highest, but most people
>>> tend not to do that - for them it's probably beneficial to choose
>>> someone who has a track
>>> record of high rates over many years.
>>
>> It's lower than Emigrant-Direct. What part of that do you not understand?
>>
>>> It's not one-size fits all (not even in the northeast) - some people
>>> have the time and energy to close and open accounts at the drop of a
>>> hat. Others (even in the northeast), prefer to stick with a proven
>>> performer.
>>
>
> I understand quite clearly that Emigrant-Direct is higher than ING at
> present.
Finally, you get a little silver star on your papar. No gold star because it
took a lot of hand holding to get you to see that.
>> What evidence do you have that Emigrant-Direct will ever have lower rates
>> than ING?
>
> Nor do we have any evidence that E-D will always have higher rates than
> ING.
They do right now and for people who put their money in these types of
accounts, that's all that matters.
> Only time will tell. If you have any evidence to the contrary I'm sure
> lots of folk would love to know. Unlike ING they don't have a track
> record to 2000.
That's not much of a track record.
> Care to quote the average rates E-D offered their customers for savings
> accounts in 2001, 2002, 2003 etc? You can get ING's from their web-site
> graph.
I'm taking the silver star back. You're are one dumb f**k.
TODAY IS ALL THAT MATTERS.
When you figure out how to invest your money in 2001, 2002, 2003, or 2004
then we can discuss history.
Russell, you're the type of guy that buys a new Buick because a
Buick was always good to you.
Aint nothing wrong with that, the world is full of those types.
Just ask a Buick dealer :-)
"Russell" <> wrote in message
news:HfS4e.1256$
>
> "Ed" <> wrote in message
> news:
> >
> > "Russell" <> wrote
> >
> >> That is a matter of opinion. You make it sound as if they always offer
> >> these rates.
> >
> > Most likely they will trend higher.
> >
>
> Since interest rates appear to be headed in that direction that would be a
> reasonable conclusion to draw for a company with a track record like ING.
>
> >> I was stating the facts - ING has a track record to 2000.
> >
> > So what?
> >
>
> In the case of interest bearing investments, I have a strong preference to
> invest in a bank / mutual fund which has a definite record of high returns.
> If the account is FDIC insured, risk assessment becomes irrelevant to me.
> ING is such a bank.
>
> >> As I previously stated: "From Emigrant's web-site "Emigrant Direct is
> >> committed to offering the 3.25% APY through 2005.".
> >
> > What will ING's rates be on 12/31/2005?
> >
>
> One cannot fortell the future, but based on their track record to 2000, I
> think it would be safe to conclude that ING's rates would be higher than the
> 95+% of banks with similar savings accounts or taxable money market funds
> (whether bank or mutual company based).
>
> >> Ideally, a person would put their money where the return is the highest
> >> and move it around when it was no longer the highest, but most people
> >> tend not to do that - for them it's probably beneficial to choose someone
> >> who has a track
> >> record of high rates over many years.
> >
> > It's lower than Emigrant-Direct. What part of that do you not understand?
> >
> >> It's not one-size fits all (not even in the northeast) - some people have
> >> the time and energy to close and open accounts at the drop of a hat.
> >> Others (even in the northeast), prefer to stick with a proven performer.
> >
>
> I understand quite clearly that E-D is higher than ING at present.
>
> > What evidence do you have that Emigrant-Direct will ever have lower rates
> > than ING?
>
> Nor do we have any evidence that E-D will always have higher rates than ING.
> Only time will tell. If you have any evidence to the contrary I'm sure lots
> of folk would love to know. Unlike ING they don't have a track record to
> 2000. Care to quote the average rates E-D offered their customers for
> savings accounts in 2001, 2002, 2003 etc? You can get ING's from their
> web-site graph.
>
> > What evidence do you have that ING will pay higher rates?
> >
>
> I'm going by their track record to 2000. Once they change and are not
> consistently higher than the 95+% of banks / mutual funds money market
> accounts, I'll switch. If E-D in mid-2006 still appears to be the leader by
> a quarter of a percentage point or more, I'll switch.
>
> >> As I clearly mention in my original posting I do have a vested interest -
> >> note no link to that is included in this posting which is a meant to be a
> >> rebuttal to the point you made.
> >
> > You lose, go away.
>
> That's your opinion - enjoy our freedom of speech.
>
> > If ING has a no spam policy I will turn you in the next time I see your
> > sorry ass posting here.
> >
>
> My, my, nasty language.
>
>
>
I wrote:
>
> TLS wrote:
> >
> > I'm in California and am wondering if I should go into the Vanguard
> > Prime Money Market or the California Tax Exempt Money Market?
> >
> > What should be the determining factor?
>
> After-tax return (including AMT if applicable).
>
> Bottom line is that the Calif. MMF comes out better given the current
> yields. The rest of this post explains why.
>
> Right now, Vanguard's Calif. Tax-Exempt MMF's 7 day average yield is
> 1.92%. We need to compare that with the after-tax yield of Vanguard's
> Prime fund (the pre-tax yield is currently 2.46%).
>
>
Since I posted that, the California MMF's yield has gone up to 2.66%,
compared to Prime MMF's 2.62% (before you subtract out taxes!). No
contest. Similar figures for Vanguard's other state tax-exempt MMFs
(2.63%-2.71%).
Heck, you'd even be better off in Vanguard's Federal MMF, which, at
2.63% yields about the same as Prime MMF, but a majority of its income
is state-tax exempt (even for California, which requires at least 50% of
assets to be invested in fed government obligations). Historically,
this fund has yielded within 3-4 basis points of Prime MMF's yield.
(tax info)
(link in original post compares yields)
--
Mark Freeland