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Hey smart people, I was considering UCAXX USAA California Money Market Fund (Tax exempt) as a place to park money for liquidity. Does it make sense based on yield and expense? I do live in California.
Fund Notes: Expense Ratio: 0.57%
7-Day Yield: As of 04/24/2014 0.01% The fund invests principally in high-quality, California tax-exempt securities with maturities of 397 days or less.
My first question would be why? What is the advantage? The yield verses the ER seems like a losing proposition. If you are looking for tax efficiency consider these USAA funds: USSTX, USATX, USBLX...here they are charted against your fund choice:
@Scout: Does it make sense based on yield and expense? I do live in California. Fund Notes: Expense Ratio: 0.57% 7-Day Yield: As of 04/24/2014 0.01% The fund invests principally in high-quality, California tax-exempt securities with maturities of 397 days or less. ---------------------- It makes no sense based on yield. The yield is 0.01%. Consider that zero yield. You get nothing. Doesn't matter that it's tax exempt: you're not being paid anything
If you want "a place to park money for liquidity", you also can't go with a bond fund, because even short term bonds do not give you the stated purpose.
The best bet for your stated purpose is online FDIC Insured banks that pay a decent yield. Ally Bank is one of the best choices for this. It currently pays 0.87% yield on a savings deposit account, no minimums, no fees. When you subtract out the California taxes you will pay on that 0.87% yield, you will be WAY ahead of anything else that I am aware of that gives you a "place to park money for liquidity". There are several other online FDIC insured banks that have yields from 0.85% to 0.95% at this time. You can find a list of them on bankrate.com and several other websites. Some others are American Express Bank, Barclay's, GE Capital, CIT, etc.
Why not just choose the highest yielding one, which I believe is about 0.95% at this time? That's an option, but some banks offer higher rates temporarily to attract money, then later lower the rates. Ally Bank has a long history of offering high rates and they don't do this as a short term teaser.
You can set up a "link" between your brokerage account and an online bank and transfer money back and forth without fees, very quickly and simply.
If anyone has found a better option for the stated purpose, I would like to know about it.
The only scenario where this makes sense is if the amount you need to park and your current income is high enough that ANY taxable dividend you get has significant tax issues beyond just paying the marginal rate on it. For example, starts triggering income limited deductions, AMT, etc that is much more punitive than the marginal tax on the dividends. This is not an uncommon problem for many 1 percenters that at times may need to park many mllions at times without tax consequences.
Otherwise, you are just lending interest-free money to the fund so they can make money off of it.
If the amounts are such that the dividends just get taxed at your marginal rate with NO other impact on taxes, then just put it in FDIC insured instruments (splitting it if above FDIC limits per account) as @rjb112 suggested above and you will likely come out better after paying taxes on it.
Depending on your liquidity requirements (don't need it all at once and when you need it is predictable), you can ladder it in FDIC insured CDs with suitable durations to increase the after tax yield further if it has no adverse tax implications beyond its marginal rate.
Thanks to you all. Yes, Bee, I've had USATX for a long time.
My original thinking was to have lower tax bill than would have with an interest bearing cash account. But, it's not really enough "income" to worry about.
Comments
Fund Notes:
Expense Ratio: 0.57%
7-Day Yield:
As of 04/24/2014 0.01%
The fund invests principally in high-quality, California tax-exempt securities with maturities of 397 days or less.
----------------------
It makes no sense based on yield. The yield is 0.01%. Consider that zero yield. You get nothing. Doesn't matter that it's tax exempt: you're not being paid anything
If you want "a place to park money for liquidity", you also can't go with a bond fund, because even short term bonds do not give you the stated purpose.
The best bet for your stated purpose is online FDIC Insured banks that pay a decent yield. Ally Bank is one of the best choices for this. It currently pays 0.87% yield on a savings deposit account, no minimums, no fees. When you subtract out the California taxes you will pay on that 0.87% yield, you will be WAY ahead of anything else that I am aware of that gives you a "place to park money for liquidity". There are several other online FDIC insured banks that have yields from 0.85% to 0.95% at this time. You can find a list of them on bankrate.com and several other websites. Some others are American Express Bank, Barclay's, GE Capital, CIT, etc.
Why not just choose the highest yielding one, which I believe is about 0.95% at this time? That's an option, but some banks offer higher rates temporarily to attract money, then later lower the rates. Ally Bank has a long history of offering high rates and they don't do this as a short term teaser.
You can set up a "link" between your brokerage account and an online bank and transfer money back and forth without fees, very quickly and simply.
If anyone has found a better option for the stated purpose, I would like to know about it.
Otherwise, you are just lending interest-free money to the fund so they can make money off of it.
If the amounts are such that the dividends just get taxed at your marginal rate with NO other impact on taxes, then just put it in FDIC insured instruments (splitting it if above FDIC limits per account) as @rjb112 suggested above and you will likely come out better after paying taxes on it.
Depending on your liquidity requirements (don't need it all at once and when you need it is predictable), you can ladder it in FDIC insured CDs with suitable durations to increase the after tax yield further if it has no adverse tax implications beyond its marginal rate.
Yes, Bee, I've had USATX for a long time.
My original thinking was to have lower tax bill than would have with an interest bearing cash account.
But, it's not really enough "income" to worry about.