💎Get our popular bond course bundle & save $80: www.diamondnestegg.com/home#_paa2isucf 💎Bond Beginners (our foundational-level bond course): www.diamondnestegg.com/bond-beginners 💎Bond Masters (our intermediate-level bond course): www.diamondnestegg.com/bond-masters 💎And join our super-supersaver membership for regular market updates & monthly live member Q&As th-cam.com/channels/nexoc6tvesvcCEzZhmI-Ag.htmljoin >>>>>>>>>> WATCH NEXT >> Our Bond Courses vs TH-cam Membership | Which Is Right For You: th-cam.com/video/H5h4Eyh0hjo/w-d-xo.html >> Bond Beginners Course Sneak Peak | I-Bonds vs TIPS: th-cam.com/video/uXPzbje1g2E/w-d-xo.html >> Bond Masters Course Sneak Peak | How To Build A Bond Ladder: th-cam.com/video/p90IDmXn19s/w-d-xo.html >>>>>>>>>> SOURCES & REFERENCED VIDEO: CAN YOU LOSE MONEY ON MONEY MARKET FUNDS: th-cam.com/video/TrdJKech_Rw/w-d-xo.html www.fidelity.com/mutual-funds/mutual-fund-spotlights/money-market-funds www.fidelity.com/bin-public/060_www_fidelity_com/documents/TY23-GSE-Supplemental-Letter.pdf www.schwabassetmanagement.com/resource/2023-supplementary-tax-information www.schwab.com/money-market-funds investor.vanguard.com/content/dam/retail/publicsite/en/documents/taxes/usgoin-2024.pdf investor.vanguard.com/investment-products/money-markets >>>>>>>>>> Here is the overview for Bond Beginners: 1. Bond Basics What A Bond Is & How A Bond Works Why Invest In Bonds New Issue vs Secondary Market Bonds Interest Rates & Bond Prices Current Yield & Yield To Maturity Always Remember This! Buying At Par, Above Par & Below Par Different Types Of Bonds Wrap-Up 2. The Risks Of Bond Investing Seven Key Bond Risks Credit Risk Interest Rate Risk Reinvestment Risk/Call Risk Inflation Risk Liquidity Risk Currency Risk & Country Risk Bond Risk Mitigation Strategies Wrap-Up 3. US Treasuries Overview What Are US Treasuries Why Invest In Treasuries Where Can You Buy Treasuries How Are Treasuries Taxed Wrap-Up 4. Treasury Bills What Are Treasury Bills (T-Bills) When Do T-Bill Auctions Happen Where Should You Buy At Auction Auto-Roll When Buying At Auction Where To Find Recent Auction Results High Rate vs Investment Rate Reopening Auctions Cash Management Bills (CMBs) Buying & Selling On Secondary Market Wrap-Up 5. Treasury Notes & Bonds What Are Treasury Notes & Bonds When Do Auctions Happen Buying Treasury Notes & Bonds Auction High Yield vs Interest Rate Floating Rate Notes (FRNs) Treasury Zeros (STRIPS) Wrap-Up 6. TIPS (Inflation-Protected) What Are TIPS When Do TIPS Auctions Happen Nominal vs Real Yields Negative Yields How Do You Adjust TIPS For Inflation Taxes On Phantom Income Secondary Market Liquidity Wrap-Up 7. I-Bonds (Inflation-Protected) What Are I-Bonds How Does I-Bond Interest Work I-Bonds vs TIPS The Annual I-Bond Limit Wrap-Up 8. Agency Bonds The Universe Of Bonds What Are Agency Bonds How Are Agency Bonds Taxed Treasuries vs Agencies Who Might Want To Consider Agencies Yield-To-Call & Yield-To-Worst Where Can You Buy Agency Bonds Wrap-Up 9. Municipal Bonds Our Bond Universe Gets More Complex What Are Municipal Bonds How Safe Are Munis How Are Munis Taxed The De Minimis Rule Social Security & Medicare Premiums Treasuries, Agencies & Munis Who Might Want To Consider Munis Wrap-Up 10. Corporate Bonds Our Bond Universe Is Complete What Are Corporate Bonds How Safe Are Corporates Corporate Bond Hierarchies Five Key Features Of Corporate Bonds How Are Corporates Taxed Treasuries vs Corporates, Etc. Who Might Want To Buy Corporates Wrap-Up >>>>>>>>>> Here is the overview for Bond Masters: 1. Stocks vs Bonds Historical Performance Are Bonds Really Less Volatile Why Invest In Bonds Accumulation vs Decumulation Allocation of Stocks vs Bonds Wrap-Up 2. Which Bonds Might Be Right For You Treasuries & Other Types of Bonds Nominal vs Real Yields Inflation vs Non-Inflation-Protected Taxable vs Tax-Advantaged Accounts Wrap-Up 3. Bond Ladders & Other Bond Strategies Normal vs Inverted Yield Curve What Is A Bond Ladder 5 Important Bond Laddering Questions Laddering When Rates Are Rising Laddering When Rates Are Falling Laddering When Rates Are Uncertain What Is A Bullet What Is A Barbell Wrap-Up 4. Holding to Maturity vs Selling Early Why Hold to Maturity When To Sell Early Before Maturity Tax Implications Of Selling Early Wrap-Up 5. Individual Bonds, Bond Funds, Etc. Why Buy Individual Bonds Why Buy Bond Funds Bond Fund Considerations Key Bond Fund Concepts CDs vs Treasuries Other High-Yield Investments Wrap-Up 6. Our B.E.S.T. Model Portfolios By Age Our B.E.S.T Model Portfolios By Age Model Portfolios In The Industry B.E.S.T Model Portfolio Difference How Much Do You Need To Retire? How I Use The Rules of 100, 110, & 120 B.E.S.T Model Portfolios (20s) B.E.S.T Model Portfolios (30s & 40s) B.E.S.T Model Portfolios (50s & 60s) B.E.S.T Model Portfolios (70s+) Wrap-Up 7. The Decumulation Phase What Is The Decumulation Phase? Bear Markets & Recessions What Can You Do In Bad/Bear Markets Decumulation Tax Considerations The 4% Rule The Bucket Strategy The Flooring Approach Jen’s Bucket Strategy With A Twist Wrap-Up >>>>>>>>>> Thanks for visiting our personal finance channel! We hope this content will help fast-track your financial journey! Everyone's financial journey is different. Please note that: 1) there are questions/ comments which I will not be able to answer without fully understanding your financial, personal & other circumstances 2) we will not ask you to call us or send us money in the comments on this channel or any of our other social media accounts, so if you see comment(s) along those lines, it is most likely spam - PLEASE DO NOT ENGAGE WITH SPAMMERS OR GIVE OUT YOUR PERSONAL INFORMATION FOR YOUR OWN SAFETY
This video reminded me to keep track of T-bill rates and compare them to the money-market rates. I had gotten out of the habit of buying T-BILLs. Thank you!
I used to buy all my T bills in treasury direct. But now I buy them in Fidelity in case a better rate in an agency, CMB, or corporate comes up. I want the speed and flexibility to jump on a good one because the best ones get sold out fastest.
But treas. direct is linked to your bank account to which the cash is delivered upon maturation , right ? What if the bank goes under. Its a honest Q, would love to hear whats your take.
Jennifer, if you are open to suggestions I think the community would benefit from a "best practices" video to answer the question: Should I buy one 6 month t-bill or six 4 week t-bills in a declining interest rate environment (assuming funds are not needed for at least 6 months and the objective is to maximize return).
That is easy. If you are convinced that interest rates are going to go down you should go long, maybe even 30-year options if you are absolutely sure. Myself I think interest rates are going to rise under the incoming administration.
@@als.2983 You are sort of correct. If you think interest rates will be lower 6 months from now, then yes, then a 6 month T-Bill might be a better way to go. However, your assumptions as to when you need the funds will not always be the same. You could also think of the 4-week and 8 week as an alternative to a high yield savings account, and you could plan your monthly bill payments around the Tuesday maturity days for those perhaps. On any case, Jennifer advocates the “laddering” approach.
@@jsizemo or just get the highest short-term bonds one can get a hold of. 3 to 6 month agency bonds for example. When they mature roll the money into more 3 to 6 month agencies. I'm tempted to play with some corporate bonds for some of my investments.
I prefer SGOV. It's a 0-3 month Treasury ETF with a . 09 expensive ratio. It's 96% state and local tax exempt, pays monthly so it can compound, and super easy to buy and sell.
Amazing video, thank you very much for explaining the % income from the US government obligations with the CA, NY and CT caveats. Super useful nuance for those residents!
Live in CA and missed the state tax exemption for Treasury obligations in MM for several recent years. It was actually pretty easy to file amended returns via Turbo Tax and CA refunded the money quickly.
I knew I was tax disadvantaged in SNAXX but didn't know the SUTXX yield was within 7 basis points of SNAXX. I also didn't know all of the details regarding exempt status. I learned something new.
That 99% state tax free can make the after-tax yield much better than all the other Schwab Money Market funds (if you live in a state with income tax). But also remember (and I think Jen should have included this info in the video) that YOU (or your CPA) need to do the calculation on your tax forms to reduce the state tax, it is not on any 1099 form sent by the broker, They publish a separate document that you need to seek out to determine the % that is USGO in each of their MM funds, and it's easy to forget to go looking for this document and I wouldn't be surprised if a CPA would miss it unless you pointed it out to them.
About 3% parked in money markets so that I can execute immediately if I would like to trade a stock or need substantial cash. Otherwise I’m in bonds & equities. I am in a high tax state … but not as high as you Jen !
I just compared the interest rate for the 52-week T-Bill auction occurring this week (11/26/2024) against SPAXX and I decided to buy the T-Bill. First, the T-Bill is not taxable at the state level. Second, the anticipated interest rate is slightly higher than SPAXX. If the Fed continues to lower interest rates at any time during the next 52-weeks, the T-Bill will easily outperform SPAXX.
SNSXX for me. The savings I get from being exempt from State Income Taxes of my cash fund puts the yield higher for me. Thanks for the education on California, NY, and CT - Wow - those legislatures and gov't officials will find EVERY way possible to squeeze a dollar from their citizens. Hopefully they're in SNSXX. Now, being in SNSXX has other hoops to jump through in selling and may take a day or two to be avail - but I don't need my dry powder ready to go that fast. If the market and tanking and I'm looking to get in, I'll give things a few days to settle before finding some cheap nuggets to pick up!
Fidelity cash sweep also holds the cash to back option positions. You can sell a cash secured put and make money on that while the cash to back the position stays in the cash sweep. Nice little double dip for us option traders.
Writing put options with SPAXX backing it is a nice way to double dip on income if you are looking to buy stocks with a limit like order. Did not know about the California tax implications about FDLXX, thank you for the explanation - great info.
I don’t like t-bills because they don’t compound automatically. The earnings from t-bills don’t reinvest, which makes sense but I’d like to keep it simple with a money market fund
I never knew about the non-taxable state percentages on SPAXX and/or FZDXX, I have both at Fidelity. Where can I find the 2024 non-taxable state percentages on the Fidelity website?
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Note the current FZDXX minimum initial investment for a Fidelity IRA account is $10,000 (versus $100,000 for a non-retirement account). Also, once the FZDXX position is established, you can go below the minimum initial investment amount without penalty.
What is the best way to avoid or lower the taxes on the CD, Tresuries or bonds without losing the safety? If there is a way to make it a capital gain vs a strait federal tax. For instance I am in the highest tax bracket and looking to invest large amounts.
Do the tax forms that fidelity et cetera provide at the end of the year show the percentage exempt from state & local taxes, or does one have to calculate that themselves? It always troubled me that it appeared Fidelity's tax sstatements indicated I wasn't I wasn't invested in exempt from state tax government money market funds. Thank you!!
What is the tax reporting like on t-bills? If you have, say, 5 t-bills for the year, is it combined on one form, or do you have to make five separate line entries at tax time?
I have a Fidelity account....can I purchase VUSXX or other Vanguard money markets at Fidelity? Or do I have to open another brokerage account at ETrade?
Does each T-bill trigger its own 1099-div form like a CD does? If so, that would be a nightmare at tax time (which is why I hate CDs...as it's an extra entry at tax time). It's just an extra thing to keep track of. Or will all t-bills be combined into one form?
VUSXX has been around 97% US treasuries all year. And for a couple months it managed to stay slightly above the 30 day treasury yield when the FED first started to lower rates. So I’ve had no reason to buy treasuries.
Given the description of the Fidelity NSF process @ 2:58, seeing higher MM rates from other brokers, and knowing the Vanguard MM funds aren't available through Fidelity; are there any MM funds paying higher rates that *are* available through Fidelity? 4 week TBills are pretty liquid, but still not immediate.
Well, I suppose you don’t have the hassle of opening a Treasury direct account, nor having to come up with 1000usd minimum to buy T bills through a brokerage account with these.
That is not the current yield, that is probably the average yield for the past 12 months, I'm sure the current yield would be more in line with current 3-month T-Bills which is about 4.5%.
Come tax time, I always apply the US debt percentage to my money market income to reduce my state taxes. I always think, who actually thinks to do this? Apparently not my mom’s tax preparer, who we fired.
Yep, I am not surprised, all most accountants do these days is enter all the tax forms in to a program and answer a few questions and their done. Looking at each individual investment like this and determining if they should be partially state or federally tax free is not something many do unless you explicitly tell them about it, and if it's up to you to do that, you might as well do your taxes yourself with a site like FreeTaxUSA.
@@bridgetg1916 No dedicated form to prepare. If you use tax software, the software will prompt you for the total interest earned and a subsequent prompt will ask you for the "% of income exempt form state tax (the 2023 % Jennifer shared in the video). 1040 Line 3B. If you hand prepare taxes (please spend $50 and get the software), multiply total interest by % exempt and list income on line 3b.
Jennifer, re: FZDXX you do not need 100k if you hold it in an IRA. You only need 10K to buy it in an IRA. Taxable requires 100k to buy it, how very if it goes under 100k after you buy it that’s not an issue.
@@petrao8669 I own FZDXX in my traditional IRA, Roth IRA, inherited IRA and my taxable account. Once you buy it if you go under 100k in taxable or 10k in an IRA you can still keep the fund it even if you only have 1 dollar in it. It’s called a Prime money market fund.
Only just now realized since I live in a state without income taxes, no real difference to me if I keep my cash cushion in MM or Tbills. And I have been buying Tbills, but takes time to keep track of them. Only concern about MM would be if interest rates drop quite a bit, as MM interest drops with it, and Tbills would lock you in. But interest rate drop isn't a concern, I'm thinking. Does my thinking look correct?
That's what I paid tax on full interest earnings on my spaxx funds and I live in Maryland. Fidelity never sent me information on the % of earnings can be exempt from state tax which is frustrating. Anyone know where to found that info in their tax doc or any place on its site or accounts, please do share.
I don't think they send it to you, you have to know to go out and get it. Maybe they send you an email when it is published, but I'm not sure. It is usually published in January of the following year.
Nice video. How does Fidelity send you 1099 on earnings from FDLXX in which 90.39% will be exempt of state and local tax? (How does IRS know?) Thank you for answering.
Nothing about it is reported on your 1099, you have to remember it yourself and do the calculation yourself based on the report that Fidelity generates in January of the following year. I don't think they even send you that report, you have to search it out yourself. It is just a list of all their MM funds with the % that was USGO for the year. Also, the IRS has nothing to do with this, because the fund interest is still fully taxable federally, it is only partially tax free for state tax, and is the reason it is not on your 1099, since the 1099 is a federal document, not state.
I am a Vanquard investor and I am interest in the VMRXX account income being derived from US Government Obligations. You say that in 2023 the account derived 52.15% of it's income from US Government Obligations. Does that mean I can deduct all or 52.15% of the monies earned from this account from my Ohio State income tax?
Good question, the wording can get confusing. It's not a deduction, you are trying to figure out how much taxable income to report your state. Think of it this way. How much of my money market interest is state tax free? How much do I pay state taxes on? 52.15% (video figure) is state tax free, so you pay state income tax on 47.85% of your vanguard interest. If you use tax software, the software will ask you for the total amount of interest your earned and at a later prompt the will ask you for "% of eligible income from US obligations" or something to that effect. Vanguard will tell you they key figure (52.15% in your example) on the 1099-DIV they send you in one of the last sections labeled "Mutual Fund and UIT Supplemental Information". If you want to pull out your 1099-DIV from last year you can familiarize yourself with where to find it for 2024. Tax prep sucks. Good luck.
I’m so confused on this. I’m in WA state. If I hold in SNSXX do I get taxed at a lower rate? I don’t recall it showing differently when tax time came around.
WA state has no income tax. Therefore, there is no advantage to hold money in SNSXX, which is largely based upon treasuries. Put your money in SWVXX for the few extra basis points.
@@kellylee514 It doesn't matter for you, since you are in a state with no state income tax, but if you were, you would not see anything "showing differently" either, since it is up to YOU to keep track of it and do the calculations based on the numbers that your brokerage gives you, it is not on your 1099 or any other tax form.
Thanks. Do you happen to know when purchasing a security on the Fidelity website, they show the sum of CORE plus NON-CORE for available spending, or just the CORE?
That's basically the difference between the yields of the various firms. Vanguard generally has lower expenses, thus higher yields. And the higher minimum funds have lower expense ratios, thus higher yields as well. The money marker investments are pretty much the same otherwise, so the main differentiator is the expense ratios.
Here is the formula: After Tax Yield = Y * (1 - f - s *(1 - se)) Y = Yield, use 7-day for money market fund and the investment rate for the t-bill f = total marginal federal income tax rate, you should include NIIT, AMT s = total marginal state tax income rate se = % of state income tax exempt portion of fixed income, the figures Jennifer highlighted in the video Calculate the Y for your money market fund and t-bill and compare.
I believe this fund is covered by the "Fidelity Money Market Fund - All Classes" entry on the "2023 Percentage of Income from U.S. Government Securities" document from Fidelity, so it would be 4.05% USGO, so only a small amount would be free from state tax if you have a state tax and are not in CA, CT, or NY.
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SOURCES & REFERENCED VIDEO:
CAN YOU LOSE MONEY ON MONEY MARKET FUNDS: th-cam.com/video/TrdJKech_Rw/w-d-xo.html
www.fidelity.com/mutual-funds/mutual-fund-spotlights/money-market-funds
www.fidelity.com/bin-public/060_www_fidelity_com/documents/TY23-GSE-Supplemental-Letter.pdf
www.schwabassetmanagement.com/resource/2023-supplementary-tax-information
www.schwab.com/money-market-funds
investor.vanguard.com/content/dam/retail/publicsite/en/documents/taxes/usgoin-2024.pdf
investor.vanguard.com/investment-products/money-markets
>>>>>>>>>>
Here is the overview for Bond Beginners:
1. Bond Basics
What A Bond Is & How A Bond Works
Why Invest In Bonds
New Issue vs Secondary Market Bonds
Interest Rates & Bond Prices
Current Yield & Yield To Maturity
Always Remember This!
Buying At Par, Above Par & Below Par
Different Types Of Bonds
Wrap-Up
2. The Risks Of Bond Investing
Seven Key Bond Risks
Credit Risk
Interest Rate Risk
Reinvestment Risk/Call Risk
Inflation Risk
Liquidity Risk
Currency Risk & Country Risk
Bond Risk Mitigation Strategies
Wrap-Up
3. US Treasuries Overview
What Are US Treasuries
Why Invest In Treasuries
Where Can You Buy Treasuries
How Are Treasuries Taxed
Wrap-Up
4. Treasury Bills
What Are Treasury Bills (T-Bills)
When Do T-Bill Auctions Happen
Where Should You Buy At Auction
Auto-Roll When Buying At Auction
Where To Find Recent Auction Results
High Rate vs Investment Rate
Reopening Auctions
Cash Management Bills (CMBs)
Buying & Selling On Secondary Market
Wrap-Up
5. Treasury Notes & Bonds
What Are Treasury Notes & Bonds
When Do Auctions Happen
Buying Treasury Notes & Bonds
Auction High Yield vs Interest Rate
Floating Rate Notes (FRNs)
Treasury Zeros (STRIPS)
Wrap-Up
6. TIPS (Inflation-Protected)
What Are TIPS
When Do TIPS Auctions Happen
Nominal vs Real Yields
Negative Yields
How Do You Adjust TIPS For Inflation
Taxes On Phantom Income
Secondary Market Liquidity
Wrap-Up
7. I-Bonds (Inflation-Protected)
What Are I-Bonds
How Does I-Bond Interest Work
I-Bonds vs TIPS
The Annual I-Bond Limit
Wrap-Up
8. Agency Bonds
The Universe Of Bonds
What Are Agency Bonds
How Are Agency Bonds Taxed
Treasuries vs Agencies
Who Might Want To Consider Agencies
Yield-To-Call & Yield-To-Worst
Where Can You Buy Agency Bonds
Wrap-Up
9. Municipal Bonds
Our Bond Universe Gets More Complex
What Are Municipal Bonds
How Safe Are Munis
How Are Munis Taxed
The De Minimis Rule
Social Security & Medicare Premiums
Treasuries, Agencies & Munis
Who Might Want To Consider Munis
Wrap-Up
10. Corporate Bonds
Our Bond Universe Is Complete
What Are Corporate Bonds
How Safe Are Corporates
Corporate Bond Hierarchies
Five Key Features Of Corporate Bonds
How Are Corporates Taxed
Treasuries vs Corporates, Etc.
Who Might Want To Buy Corporates
Wrap-Up
>>>>>>>>>>
Here is the overview for Bond Masters:
1. Stocks vs Bonds
Historical Performance
Are Bonds Really Less Volatile
Why Invest In Bonds
Accumulation vs Decumulation
Allocation of Stocks vs Bonds
Wrap-Up
2. Which Bonds Might Be Right For You
Treasuries & Other Types of Bonds
Nominal vs Real Yields
Inflation vs Non-Inflation-Protected
Taxable vs Tax-Advantaged Accounts
Wrap-Up
3. Bond Ladders & Other Bond Strategies
Normal vs Inverted Yield Curve
What Is A Bond Ladder
5 Important Bond Laddering Questions
Laddering When Rates Are Rising
Laddering When Rates Are Falling
Laddering When Rates Are Uncertain
What Is A Bullet
What Is A Barbell
Wrap-Up
4. Holding to Maturity vs Selling Early
Why Hold to Maturity
When To Sell Early Before Maturity
Tax Implications Of Selling Early
Wrap-Up
5. Individual Bonds, Bond Funds, Etc.
Why Buy Individual Bonds
Why Buy Bond Funds
Bond Fund Considerations
Key Bond Fund Concepts
CDs vs Treasuries
Other High-Yield Investments
Wrap-Up
6. Our B.E.S.T. Model Portfolios By Age
Our B.E.S.T Model Portfolios By Age
Model Portfolios In The Industry
B.E.S.T Model Portfolio Difference
How Much Do You Need To Retire?
How I Use The Rules of 100, 110, & 120
B.E.S.T Model Portfolios (20s)
B.E.S.T Model Portfolios (30s & 40s)
B.E.S.T Model Portfolios (50s & 60s)
B.E.S.T Model Portfolios (70s+)
Wrap-Up
7. The Decumulation Phase
What Is The Decumulation Phase?
Bear Markets & Recessions
What Can You Do In Bad/Bear Markets
Decumulation Tax Considerations
The 4% Rule
The Bucket Strategy
The Flooring Approach
Jen’s Bucket Strategy With A Twist
Wrap-Up
>>>>>>>>>>
Thanks for visiting our personal finance channel! We hope this content will help fast-track your financial journey! Everyone's financial journey is different. Please note that:
1) there are questions/ comments which I will not be able to answer without fully understanding your financial, personal & other circumstances
2) we will not ask you to call us or send us money in the comments on this channel or any of our other social media accounts, so if you see comment(s) along those lines, it is most likely spam - PLEASE DO NOT ENGAGE WITH SPAMMERS OR GIVE OUT YOUR PERSONAL INFORMATION FOR YOUR OWN SAFETY
This video reminded me to keep track of T-bill rates and compare them to the money-market rates. I had gotten out of the habit of buying T-BILLs. Thank you!
T bills from Treasury Direct, highest short term yield and the safest in the world.
I used to buy all my T bills in treasury direct. But now I buy them in Fidelity in case a better rate in an agency, CMB, or corporate comes up. I want the speed and flexibility to jump on a good one because the best ones get sold out fastest.
But treas. direct is linked to your bank account to which the cash is delivered upon maturation , right ? What if the bank goes under. Its a honest Q, would love to hear whats your take.
Jennifer, if you are open to suggestions I think the community would benefit from a "best practices" video to answer the question: Should I buy one 6 month t-bill or six 4 week t-bills in a declining interest rate environment (assuming funds are not needed for at least 6 months and the objective is to maximize return).
That is easy. If you are convinced that interest rates are going to go down you should go long, maybe even 30-year options if you are absolutely sure. Myself I think interest rates are going to rise under the incoming administration.
@@tim71pos You’re talking specifically about long term (10+year) bonds, but the person above is asking about the different short term T-Bills.
@@als.2983 You are sort of correct. If you think interest rates will be lower 6 months from now, then yes, then a 6 month T-Bill might be a better way to go. However, your assumptions as to when you need the funds will not always be the same.
You could also think of the 4-week and 8 week as an alternative to a high yield savings account, and you could plan your monthly bill payments around the Tuesday maturity days for those perhaps.
On any case, Jennifer advocates the “laddering” approach.
@@jsizemo or just get the highest short-term bonds one can get a hold of. 3 to 6 month agency bonds for example. When they mature roll the money into more 3 to 6 month agencies. I'm tempted to play with some corporate bonds for some of my investments.
I prefer SGOV. It's a 0-3 month Treasury ETF with a . 09 expensive ratio. It's 96% state and local tax exempt, pays monthly so it can compound, and super easy to buy and sell.
Why not a 1-month CD at 4.5% interest? Thanks.
Amazing video, thank you very much for explaining the % income from the US government obligations with the CA, NY and CT caveats. Super useful nuance for those residents!
Live in CA and missed the state tax exemption for Treasury obligations in MM for several recent years. It was actually pretty easy to file amended returns via Turbo Tax and CA refunded the money quickly.
Best organization and presentation of financial info on the net. Well done.
TBills all the way! High Tax state.
Thank you. I'm in CA and avoiding tax is important
I knew I was tax disadvantaged in SNAXX but didn't know the SUTXX yield was within 7 basis points of SNAXX. I also didn't know all of the details regarding exempt status. I learned something new.
That 99% state tax free can make the after-tax yield much better than all the other Schwab Money Market funds (if you live in a state with income tax). But also remember (and I think Jen should have included this info in the video) that YOU (or your CPA) need to do the calculation on your tax forms to reduce the state tax, it is not on any 1099 form sent by the broker, They publish a separate document that you need to seek out to determine the % that is USGO in each of their MM funds, and it's easy to forget to go looking for this document and I wouldn't be surprised if a CPA would miss it unless you pointed it out to them.
About 3% parked in money markets so that I can execute immediately if I would like to trade a stock or need substantial cash. Otherwise I’m in bonds & equities. I am in a high tax state … but not as high as you Jen !
I just compared the interest rate for the 52-week T-Bill auction occurring this week (11/26/2024) against SPAXX and I decided to buy the T-Bill. First, the T-Bill is not taxable at the state level. Second, the anticipated interest rate is slightly higher than SPAXX. If the Fed continues to lower interest rates at any time during the next 52-weeks, the T-Bill will easily outperform SPAXX.
I don’t live in NY, CA or CT. I have both Treasuries and MMFs. I keep track of rates on all my cash investments to make sure I get the best rates.
SNSXX for me. The savings I get from being exempt from State Income Taxes of my cash fund puts the yield higher for me. Thanks for the education on California, NY, and CT - Wow - those legislatures and gov't officials will find EVERY way possible to squeeze a dollar from their citizens. Hopefully they're in SNSXX.
Now, being in SNSXX has other hoops to jump through in selling and may take a day or two to be avail - but I don't need my dry powder ready to go that fast. If the market and tanking and I'm looking to get in, I'll give things a few days to settle before finding some cheap nuggets to pick up!
VUSXX seems the best of them all Highest yield, low ER, and over 80% non taxable city state.
VUSXX state tax free % will be higher in 2024 than 80%; more like the 95%+ range (YMMV). In 2022 and 2021 it was 100% state tax free. 94% in 2020.
Great info Jennifer Thank You. Have a wonderful holiday!
How about SGOV instead? Is it better?
Fidelity cash sweep also holds the cash to back option positions. You can sell a cash secured put and make money on that while the cash to back the position stays in the cash sweep. Nice little double dip for us option traders.
Writing put options with SPAXX backing it is a nice way to double dip on income if you are looking to buy stocks with a limit like order. Did not know about the California tax implications about FDLXX, thank you for the explanation - great info.
I don’t like t-bills because they don’t compound automatically. The earnings from t-bills don’t reinvest, which makes sense but I’d like to keep it simple with a money market fund
You can make them auto reinvest in same duration depending on your broker
There is a video on how to automatically renew
I think they're saying the the interest income isn't used to purchase more T-Bills at their discount
Edit: when the T-Bill matures
@@variableresistor can't you use a t-bill fund like SGOV and achieve this?
I'm in NY. Am I understanding correctly that it would be better to move from SPAXX to FDLXX?
I never knew about the non-taxable state percentages on SPAXX and/or FZDXX, I have both at Fidelity. Where can I find the 2024 non-taxable state percentages on the Fidelity website?
Note the current FZDXX minimum initial investment for a Fidelity IRA account is $10,000 (versus $100,000 for a non-retirement account). Also, once the FZDXX position is established, you can go below the minimum initial investment amount without penalty.
Jen are net expense ratios in money market funds deducted before the stated 7 day yield? Or after?
Before, the yield displayed takes in to account all expenses and gains.
They are deducted ahead of time, so the yield given has all that factored in already.
What is the best way to avoid or lower the taxes on the CD, Tresuries or bonds without losing the safety? If there is a way to make it a capital gain vs a strait federal tax. For instance I am in the highest tax bracket and looking to invest large amounts.
How about sgov or bil ?
can you compare FDLXX with SGOV in CA?
Outstanding presentation, Jen. Thank you!
Thanks Jennifer, this was very informative and helped me make an important decision! 👍👍👍
Do the tax forms that fidelity et cetera provide at the end of the year show the percentage exempt from state & local taxes, or does one have to calculate that themselves? It always troubled me that it appeared Fidelity's tax sstatements indicated I wasn't I wasn't invested in exempt from state tax government money market funds. Thank you!!
I park my free cash in FDRXX and periodically buy T Bills since they pay about 0.2% over MM Funds
What is the tax reporting like on t-bills? If you have, say, 5 t-bills for the year, is it combined on one form, or do you have to make five separate line entries at tax time?
You will get a 1099 with a total of all reportable interest.
In dollar amount as an example, if you have half a million dollars doing this, taxed in CA, the difference is about $160 per month better for T-bills.
I have a Fidelity account....can I purchase VUSXX or other Vanguard money markets at Fidelity? Or do I have to open another brokerage account at ETrade?
Does each T-bill trigger its own 1099-div form like a CD does? If so, that would be a nightmare at tax time (which is why I hate CDs...as it's an extra entry at tax time). It's just an extra thing to keep track of.
Or will all t-bills be combined into one form?
One 1099 with all Tbills listed
VUSXX has been around 97% US treasuries all year. And for a couple months it managed to stay slightly above the 30 day treasury yield when the FED first started to lower rates. So I’ve had no reason to buy treasuries.
VUSXX is tough to beat. That 0.09% expense ratio is sweet. SPAXX at 0.42%. SNSXX at 0.34%. Thank you John Bogle.
I have a good portion of cash in VUSXX as well. Good MM fund. Although a majority of my cash is still in an 8 week T-Bill ladder via Treasury Direct.
Jennifer, thanks for the video, great information ❤ what do you think about new actively managed muni ETFs from Vanguard?
Given the description of the Fidelity NSF process @ 2:58, seeing higher MM rates from other brokers, and knowing the Vanguard MM funds aren't available through Fidelity; are there any MM funds paying higher rates that *are* available through Fidelity?
4 week TBills are pretty liquid, but still not immediate.
Most brokerage cash is at Schwab, so shifting to SNSXX as a Calif resident
How does USFR stack up as an alternative to these funds?
What about Fidelity fees?
Is it a good idea to buy those ETF based on T-Bills (i.e. Global X 1-3 Month T-Bill = CLIP) with current yields of 5.2%?
Well, I suppose you don’t have the hassle of opening a Treasury direct account, nor having to come up with 1000usd minimum to buy T bills through a brokerage account with these.
That is not the current yield, that is probably the average yield for the past 12 months, I'm sure the current yield would be more in line with current 3-month T-Bills which is about 4.5%.
Brilliant presentation .Thank you.
Fzdxx sweeps for me
Come tax time, I always apply the US debt percentage to my money market income to reduce my state taxes. I always think, who actually thinks to do this? Apparently not my mom’s tax preparer, who we fired.
Yep, I am not surprised, all most accountants do these days is enter all the tax forms in to a program and answer a few questions and their done. Looking at each individual investment like this and determining if they should be partially state or federally tax free is not something many do unless you explicitly tell them about it, and if it's up to you to do that, you might as well do your taxes yourself with a site like FreeTaxUSA.
Do you mind explaining how you do this, is it by filling out a certain form and filing with your returns? Thanks!
@@bridgetg1916 No dedicated form to prepare.
If you use tax software, the software will prompt you for the total interest earned and a subsequent prompt will ask you for the "% of income exempt form state tax (the 2023 % Jennifer shared in the video).
1040 Line 3B. If you hand prepare taxes (please spend $50 and get the software), multiply total interest by % exempt and list income on line 3b.
So what is the best choice for California on Vanguard?
Excellent video. I split between Vanguard money market and T bills.
Thanks for sharing!
Jennifer, re: FZDXX you do not need 100k if you hold it in an IRA. You only need 10K to buy it in an IRA. Taxable requires 100k to buy it, how very if it goes under 100k after you buy it that’s not an issue.
Thanks for sharing Kim!
That's good to know, I was not aware of that.
@@petrao8669 I own FZDXX in my traditional IRA, Roth IRA, inherited IRA and my taxable account. Once you buy it if you go under 100k in taxable or 10k in an IRA you can still keep the fund it even if you only have 1 dollar in it. It’s called a Prime money market fund.
How much federal tax they taking after redrawing ibond?
VUSXX is the best.
Only just now realized since I live in a state without income taxes, no real difference to me if I keep my cash cushion in MM or Tbills. And I have been buying Tbills, but takes time to keep track of them. Only concern about MM would be if interest rates drop quite a bit, as MM interest drops with it, and Tbills would lock you in. But interest rate drop isn't a concern, I'm thinking. Does my thinking look correct?
Have you done videos on sgov and tltw
Not yet - stay tuned
FZDXX has a minimum investment of $10,000 for retirement accounts.
Really? Thanks for the clarification. That is where I have a portion of my cash parked in my Traditional Rollover IRA account.
Great content very helpful.
Thank you so much! 🇺🇸 👍☕
That's what I paid tax on full interest earnings on my spaxx funds and I live in Maryland. Fidelity never sent me information on the % of earnings can be exempt from state tax which is frustrating. Anyone know where to found that info in their tax doc or any place on its site or accounts, please do share.
I don't think they send it to you, you have to know to go out and get it. Maybe they send you an email when it is published, but I'm not sure. It is usually published in January of the following year.
Nice video. How does Fidelity send you 1099 on earnings from FDLXX in which 90.39% will be exempt of state and local tax? (How does IRS know?) Thank you for answering.
Nothing about it is reported on your 1099, you have to remember it yourself and do the calculation yourself based on the report that Fidelity generates in January of the following year. I don't think they even send you that report, you have to search it out yourself. It is just a list of all their MM funds with the % that was USGO for the year. Also, the IRS has nothing to do with this, because the fund interest is still fully taxable federally, it is only partially tax free for state tax, and is the reason it is not on your 1099, since the 1099 is a federal document, not state.
The less taxes the better. Imo
I am a Vanquard investor and I am interest in the VMRXX account income being derived from US Government Obligations. You say that in 2023 the account derived 52.15% of it's income from US Government Obligations. Does that mean I can deduct all or 52.15% of the monies earned from this account from my Ohio State income tax?
Good question, the wording can get confusing. It's not a deduction, you are trying to figure out how much taxable income to report your state. Think of it this way. How much of my money market interest is state tax free? How much do I pay state taxes on? 52.15% (video figure) is state tax free, so you pay state income tax on 47.85% of your vanguard interest.
If you use tax software, the software will ask you for the total amount of interest your earned and at a later prompt the will ask you for "% of eligible income from US obligations" or something to that effect.
Vanguard will tell you they key figure (52.15% in your example) on the 1099-DIV they send you in one of the last sections labeled "Mutual Fund and UIT Supplemental Information". If you want to pull out your 1099-DIV from last year you can familiarize yourself with where to find it for 2024.
Tax prep sucks. Good luck.
@@als.2983 Found it, Thank you.
I use both, but the ratio changes depending on what I have going on.
Why not a 1-month CD at 4.5%?
I’m so confused on this. I’m in WA state. If I hold in SNSXX do I get taxed at a lower rate? I don’t recall it showing differently when tax time came around.
WA state has no income tax. Therefore, there is no advantage to hold money in SNSXX, which is largely based upon treasuries. Put your money in SWVXX for the few extra basis points.
@ that’s where it’s at. Thanks
@@kellylee514 It doesn't matter for you, since you are in a state with no state income tax, but if you were, you would not see anything "showing differently" either, since it is up to YOU to keep track of it and do the calculations based on the numbers that your brokerage gives you, it is not on your 1099 or any other tax form.
Thanks. Do you happen to know when purchasing a security on the Fidelity website, they show the sum of CORE plus NON-CORE for available spending, or just the CORE?
They have always shown combined on my order sheet.
Mine shows core balance spaxx plus fdrxx as the cash balance available for trades. I have not placed any buys greater than my core balance tho.
All Fidelity MM funds are added together to display you total cash available.
Do I need to study this if I am living in Texas?
Texas does not have a state tax, so probably not. Just look for the MM fund that has the highest 7-day yield and you should be good.
I am sad that 10yr treasury yeild made quite a bit of drop today.
T-bills usually come in 3 or 6 months. If you invest in T-bills, your money might be locked up for that period of time making your fund illiquid.
You can also get 4-week T-Bills. They are issued every week.
Thats what i do too... money that I possibly will need access to I put in 4 wk Tbill.
Thanks for a great video!
Great Info! Thank you!
Is an expense ratio for money market funds
That's basically the difference between the yields of the various firms. Vanguard generally has lower expenses, thus higher yields. And the higher minimum funds have lower expense ratios, thus higher yields as well. The money marker investments are pretty much the same otherwise, so the main differentiator is the expense ratios.
Schwab gave me an error this am trying to buy the 2 year , 3 month and 6 month was no issue they placed fine.
Schwab reported system problem for 2, 5, & 7 yr note purchases. Appeared to resolve by 6:30 a.m. PST
Awesome, period !
How about the Black Rock family? TMCXX?
We'll add Blackrock to the list of future vids
Thanks!
Has anyone created a spreadsheet calculator to analyze these funds vs t-bills based on the state you live in?
Here is the formula:
After Tax Yield = Y * (1 - f - s *(1 - se))
Y = Yield, use 7-day for money market fund and the investment rate for the t-bill
f = total marginal federal income tax rate, you should include NIIT, AMT
s = total marginal state tax income rate
se = % of state income tax exempt portion of fixed income, the figures Jennifer highlighted in the video
Calculate the Y for your money market fund and t-bill and compare.
thank you
Tbills 4 sure.
I have money in sprxx fidelity. What’s the difference with this one ? Thanks
I believe this fund is covered by the "Fidelity Money Market Fund - All Classes" entry on the "2023 Percentage of Income from U.S. Government Securities" document from Fidelity, so it would be 4.05% USGO, so only a small amount would be free from state tax if you have a state tax and are not in CA, CT, or NY.
Your educational content and presentation is top-notch
Great video. Thank you!