Now that the year has ended, I was looking at interest that I had earned my high yield savings and money market accounts (like INGDirect, Emigrant, HSBC, etc). Those were all paying around 4% and they were FDIC insured. The only catch, is that they are now subject to taxes...
So, I started looking at tax-free and AMT-free (alternative min. tax) money market accounts. I was surprised to find that if you take a look at their tax equivilants earnings, they are doing much better than their tax equiv. counterparts. I currently utilize Fidelity for my brokerage account (due to the Fidelity 1.5% MBNA CashBack mastercard that FW turned me on to). Here is what I found (the below yields are for 12/31/05).
(note: 25, 28, 33, and 35 represent your tax bracket/tax rate)
. Fidelity Tax-Free Money Market (FMOXX) - $5,000 min. to start . Paying 2.93%, which is Tax equivilant Rate 25: 3.91% | 28: 4.07% | 33: 4.37% | 35: 4.51%
. Fidelity AMT Tax-Free Money Fund (FIMXX) - $25,000 min. to start . Paying 3.08%, which is Tax equivilant Rate 25: 4.11% | 28: 4.28% | 33: 4.60% | 35: 4.74%
What is even more interesting, is that if you live in AZ, CA, CT, FL, MA, MI, NJ, NY, OH, or PA, then Fidelity has state specific tax free and tax/amt free funds that are also exempt from state taxes. So, the equiv. yields are even higher. Take a look at NY, California's and Massachusetts:
. Fidelity New York AMT Tax-Free Money Market Fund (FSNXX) - $25,000 min. to start . Paying 3.01%, which is Tax equivilant Rate 25: 4.49% | 28: 4.73% | 33: 5.08% | 35: 5.28%
. Fidelity New York Municipal Money Market Fund (FNYXX) - $5,000 min. to start . Paying 2.89%, which is Tax equivilant Rate 25: 4.31% | 28: 4.53% | 33: 4.87% | 35: 5.06%
. Fidelity California AMT Tax-Free Money Market Fund (FSPXX) - $25,000 min. to start . Paying 2.96%, which is Tax equivilant Rate 25: 4.35% | 28: 4.53% | 33: 4.87% | 35: 5.07%
. Fidelity California Municipal Money Market Fund (FCFXX) - $5,000 min. to start . Paying 2.87%, which is Tax equivilant Rate 25: 4.22% | 28: 4.39% | 33: 4.72% | 35: 4.92%
. Fidelity Massachusetts AMT Tax-Free Money Market Fund (FMSXX) - $25,000 min. to start . Paying 2.93%, which is Tax equivilant Rate 25: 4.12% | 28: 4.29% | 33: 4.61% | 35: 4.76%
. Fidelity Massachusetts Municipal Money Market Fund (FDMXX) - $5,000 min. to start . Paying 2.87%, which is Tax equivilant Rate 25: 4.04% | 28: 4.21% | 33: 4.52% | 35: 4.66%
I know that other brokerage firms have similiar money markets. Here is info on Vanguard's Tax Exempt Money Market funds: http://flagship5.vanguard.com/VGApp/hnw/FundsByObjectiveDetail?category=TEMM They have ones for CA, NJ, NY, OH, PA and a general one. One note though: I didn't see any at Vanguard that were specifically market as AMT tax free, so this is something to examine more closely if AMT concerns you. I also couldn't find their 'tax equiv' yields as they don't list that on their site (but you can probably correlate with the Fidelity ones above). Their current rates are: . Vanguard NY tax exempt money market fund (VYFXX): 3.19% ($3k min. to invest) . Vanguard CA tax exempt money market fund (VCTXX): 3.15% ($3k min. to invest) . Vanguard NJ tax exempt money market fund (VNJXX): 3.13% ($3k min. to invest) . Vanguard OH tax exempt money market fund (VOHXX): 3.22% ($3k min. to invest) . Vanguard PA tax exempt money market fund (VPTXX): 3.24% ($3k min. to invest) . Vanguard tax exempt money market fund (VMSXX): 3.22% ($3k min. to invest) . (note: here is 2004 year end AMT percentages for the above vanguard funds: http://www.vanguard.com/pdf/icamt.pdf )
T Rowe Price has a few as well. See: T Rowe Price Linky . TRowePrice CA tax exempt money market fund (PCTXX): 2.80% ($2500 min. to invest) . TRowePrice MD tax exempt money market fund (TMDXX): 2.84% ($2500 min. to invest) . TRowePrice NY tax exempt money market fund (NYTXX): 2.76% ($2500 min. to invest) . TRowePrice Summit tax exempt money market fund (TRSXX): 2.89% ($25000 min. to invest) . TRowePrice Tax exempt money market fund (PTEXX): 2.86% ($2500 min. to invest)
So, I just moved all my money from Emigrant and other high yield savings over to an Tax/AMT free money market at Fidelity since I had an account there and Vauguard doesn't have a MA specific one (I live in MA). If their rates go down, I can easily sell the money market and just move it back to Emigrant or any other favorite FatWallet place. Fidelity has insurance that covers unlimited protection (versus just $100k for FDIC insurance), so no more playing games with multiple savings accounts. (This is the wording from the Fidelity site: Fidelity Brokerage accounts are protected by SIPC for each customer up to $500,000 in securities and Money market funds held in a brokerage account are considered securities. In addition, Fidelity has arranged for additional unlimited protection for cash and securities to supplement its SIPC coverage)
As a background, what got me going was that I saw this article about the AMT: The Alternative Minimum Tax (AMT) was originally targeted at wealthy people with creative tax advisors. Next year it just might apply to you. Unlike most tax laws, the AMT went largely unchanged for 30 years. Consequently, it applied to more and more people each year. 19,000 households paid the AMT in 1970. 2.4 million did in 2003.*
Who Will Pay the AMT in 2005?** • 17% of taxpayers earning between $75,000 and $100,000 • 39% of those earning between $100,000 and $200,000 • 78% of those earning between $200,000 and $500,000
Thanks slimcustomer for the link, I am sure that it will help some people reading this thread...With that said, the main point of this thread was to give people an higher yielding after tax alternative for their money versus Emigrant/INGDirect/HSBC/etc.
Questions: - Can these MM funds be traded thru a discount broker (e.g. Scottrade) like a regular Mutual Fund? - Is there a fee involved in trading - buying vs redemption? - Is there a minimum holding period?
Also I see that the interest rate varies .... VCTXX (Vanguard CA MM fund) used be under 2% in August now above 3% ... is this proportional to the Fed funds rate?
Also FYI from Vanguard site for VCTXX .... 20% of the funds may be invested in bonds subject to Federal AMT.
But a very interesting proposition indeed ... compared to the CD laddering / online savings accounts ... especially if these can be traded thru a broker with some check writing privileges.
Kikkoman - here are answers to your questions: Q) Can these MM funds be traded thru a discount broker (e.g. Scottrade) like a regular Mutual Fund? A) Fidelity (and others) can be your discount broker. Fidelity stock trading comission are $8 / $11 / $20 depending upon balance and amoutn of trades per year see: Fidelity Commision Linky Whether Scottrade and others will allow you to buy these funds, I doubt it as they might have their own - but check with them to make sure.
Q) Is there a fee involved in trading - buying vs redemption? A) No fees to buy/sell - it is a money market
Q) Is there a minimum holding period? A) No min. holding period
Q) Also I see that the interest rate varies .... A) Yes, the interest rates change daily
With short term rates relatively high, these look good now, but remember the rate fluctuates frequently.
slimcustomer
Senior Member - 1K
posted: Dec. 31, 2005 @ 11:27a
smahs said: the main point of this thread was to give people an higher yielding after tax alternative for their money versus Emigrant/INGDirect/HSBC/etc.
smahs said: Fidelity has insurance that covers unlimited protection (versus just $100k for FDIC insurance), so no more playing games with multiple savings accounts. (This is the wording from the Fidelity site: Fidelity Brokerage accounts are protected by SIPC for each customer up to $500,000 in securities and Money market funds held in a brokerage account are considered securities. In addition, Fidelity has arranged for additional unlimited protection for cash and securities to supplement its SIPC coverage)
Let's understand that SIPC is not the same as FDIC. Bankrate article
Yes, Kikkoman, check writing is available for almost all of them, but they all have different terms.
Fidelity --------- For example, looking at (click here) Tax-Free Money Market (FMOXX) , you will see it says: Checkwriting: Yes. Checkwriting minimum: $500. (This is listed under: Fund Facts & Features). Now, this term only applies only if you have a 'Mutual Fund' type main account at Fidelity.
With that said, if you have a 'Brokerage' account instead, it can contains stocks and/or mutual funds. So, you are able to designate one fund as your 'core' brokerage account fund. (I did this with the MA Municipal Money Market Fund (tax-free) fund, symbol: FDMXX. Since it is my 'core' account, I am able to write checks for any amount (no minimum). Look here under: Other Core Account Options Note: Not all funds can be made your 'core' fund, like the AMT tax-free funds can't be made into a 'core' account, but you can still buy them, just no check-writing if in a brokerage acct.
Note on Fidelity: Cancelled checks can be seen as 'images' in your brokerage account. More details on checkwriting feature: linky
Vanguard -------- Checkwriting feature is allowed, just a $250 min. per check. see: Linky
T Rowe Price ------------ The answer appears to be Yes, checkwriting is available with $500 min. per check. Here is wording from a prospectus at T Rowe price: "You may write an unlimited number of free checks on any money market fund and most bond funds, with a minimum of $500 per check. Keep in mind, however, that a check results in a redemption; a check written on a bond fund will create a taxable event which you and we must report to the IRS. (Not available for equity funds or the Emerging Markets Bond, High Yield, International Bond, or U.S. Bond Index Funds)"
RussianInNYC
Senior Member
posted: Jan. 2, 2006 @ 9:18a
I play this game for some time now shifting money b/w HSBC and Vanguard depending on which after-tx rate is better. Minuses of Vanguard funds: 10 calendar days hold on deposits (even those made via ACH), $250 minimum on checks you write out. Also, there is a $10 annual fee if you have less than $3000 on some date in June (got burned with it it)
va1234 said: what does "Investor Shares expense ratio as of 10/31/2005 0.13%" mean. This was mentioned for vanguard tax exempt funds.
I couldn't find tax exempt funds on fidelity.
I had the same question. I did a bit of searching, and it appears that these are costs to manage the fund which are subtracted from the listed yield. I don't know if the yield already includes this and the ratio is being shown for informative purposes or not.
For Vanguard, if you click on the highlighted blue letter 'C' (it is next to the Yield that is listed on a particular fund), a pop-up window appears that states: "SEVEN DAY AVERAGE INCOME YIELD NET OF EXPENSES"
So, using for example, the Vanguard NY tax exempt money market fund (VYFXX), it is paying 3.24% as of 10:30pm on 1/4/06. So, if you live in NYC and you are in the 35% tax bracket, this would be an equivilant of a whopping 5.58% return!
(here is another calculator, this one by CNNMoney - see: Linky It is interesting that the results are different from the other calculator, even if the same data is used. And yes, it doesn't match the Fidelity calculated tax-equiv. yields either, but they are all close to one another)
funkyfresh
Broke Member
posted: Jan. 4, 2006 @ 10:13p
Neuberger Berman has NY and CA closed-end funds. These are not MM accounts but it seems like they are tax exempt. The pdf for the NY Intermediate Municipal Fund (published Sep 2005) lists a distribution yield on market price of 5.67% and tax-equivalent yield of 9.93%. Since shares of the fund are publicly traded the return could be reduced by market demand and since it is not a MM account I assume there are no check writing abilities but I also imagine there cannot be an enforced minimum since shares are purchased from other investors and not directly from the fund itself. Can anyone clarify the tax implications and any other risks? I assume that gains/losses on sales of the shares would be taxed as cap gains/losses while distributions would be tax free. At today's closing price $10000 would buy 750 shares which would yield $585 tax free in a year (at $0.065/share per month). The price of a share would have to drop 2.61% from its current level before performance was reduced to that of the Vanguard NY fund. On the other hand there is the potential for increases in value.
Yep, the funds have all dropped, but let's be clear, they are all still paying better for most people (after you consider taxes) than ALL of the taxable money markets that people here on FW like (including emigrant, ingdirect, HSBCdirect, etc).
Note: When I say 'most people', this is because your tax. equiv. yield is dependent on your income, so if you have very low income than it is possible that you would get a better return in a standard money market.
U.S. tax-free money funds have record inflows[/B Wed Jan 11, 2006 04:07 PM ET NEW YORK, Jan 11 (Reuters) - U.S. taxable money market funds had $14.1 billion of inflows in the latest reporting week, while tax-free funds recorded a record $14.96 billion of inflows, the Money Fund Report said on Wednesday.
Taxable money fund yields averaged 3.68 percent in the latest week, up 7 basis points from the prior week, and the highest since June 2001, according to the report published by iMoneyNet Inc. Tax-free yields plunged 33 basis points to 2.47 percent.
The record tax-free weekly inflows were fueled mainly by institutional investors socking away cash in their short-term tax-free accounts, said Pete Crane, managing editor of the Money Fund Report.
The combined $29 billion of weekly inflows for all money funds was close to the record set in June of last year, when all funds took in $30 billion in one week, Crane said.
Strong inflows were mainly driven by seasonal factors at the start of a new year, when investors park bonuses and other one-time payments in a liquid instrument, Crane said.
Tax-free yields likely declined because there was a large amount of money chasing a limited supply of securities, Crane added. The average yield is likely to pop back up in coming weeks, he said.
Total assets of tax-free money funds reached a record high of $352 billion in the latest week, the report said. Taxable money fund assets totaled nearly $1.68 trillion.
I would actually use Vanguard instead of Fidelity as they expense ratios are generally better than Fidelity, but Fidelity has a number of advantages for me:
1 - They have physical offices all over the place (one near my home and one near my office) 2 - The Fidelity 1.5% CashBack Mastercard with MBNA 3 - Vanguard doesn't offer a Massachusetts tax-free money market 4 - Fidelity's online website and portal are truly spectacular. Their customer service can't be beat as well 5 - Stock trades are cheaper at Fidelity ($11/trade if you have more than $50k in assets, versus $22.50/trade at Vanugard if you have more than $250k in assets. There isn't price parity until you hit $1million in assets mark) 6 - Some of Fidelity's funds are lower expense ratio than Vanugards (ie: Spartan 500 index have only 0.10% expenses, versus Vanguard's 0.18%.). Yes, I agree, generally Vanguard has lower expense ratio, but not all the time.
Anyways, this is a bit of a digression - let's keep this thread focused on Tax-Free money markets and their rates.
Yeah, what happened? His posts have disappeared even from other threads.
ebaynoob
Member
posted: Jan. 18, 2006 @ 10:16p
I agree it is a terrible shame to see Dolmar remove his posts. His depth of insight regarding short-term investments was extraordinarily invaluable. Personally, by his well researched, keenly reasoned replies, I gained invaluable inisghts into short-term investments.
I hope Dolmar shares his reasons for removing his posts...I think it will make some backward members here (who unfortunately have a means of eroding the community feeling here) hang their cyber-heads in shame.
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