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Vanguard Treasury Money Market

Bogleheads • View forum - Investing - Theory, News & General - www.bogleheads.org
Since Vanguard made the switch to the Federal Money Market (VMFXX) for the brokerage settlement account, I have kept small amounts of money there. When I went to do my taxes last year, I figured that since VMFXX is invested in federal securities, the dividend income would be exempt from state (CA) taxation......I was wrong! Have a look at this form:

U.S. government obligations information

Fund --- % of income from US obligations --- % invested in US obligations --- Current Yield --- Expense Ratio

VMFXX Federal Money Market Fund --- 58.77 --- 62.55 --- 0.80% --- 0.11%

VMMXX Prime Money Market Fund --- 19.31 --- 21.40 --- 1.01% --- 0.16%

VUSXX Treasury Money Market Fund** --- 100.00 --- 100.00 --- 0.82% --- 0.09%

**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.

As you can see, VUSXX is the only MM exempt from CA state taxation. VMFXX is not exempt (% US obligations must have dipped below 50% at some point during the year). With the recent increase in yields, I had been contemplating keeping some emergency cash into the either VMMXX or VMFXX, but now it looks like VUSXX is worthy of consideration as well. The after-tax yield of VMMXX would still be higher, but I believe that VUSXX (with 100% US treasuries) is the safer choice.

The biggest downside is that VUSXX requires a $50k minimum to open. It does have the lowest expense ratio though.

Of course online savings accounts are also a valid option (with even higher yields and FDIC protection), but VUSXX should be considered the safest option for folks that want to keep their money within Vanguard.

TL;DR

Since VMFXX lacks the state tax exemption, I see no reason to keep any cash there. VUSXX provides great safety (100% US treasuries), a lower expense ratio, and is exempt from state taxes.
Date: Jun 19, 2017   


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