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Don’t think rate hike has peaked and the FED starts to pause. Given the strong labor market, low unemployment rate and heathy consumer spending, inflation will remain above 2% FED target. Thus, there is a good likelihood of another round of rate hike is coming later this year.
When FED pivots and starts to cut rates, all bond instruments will be affected. At that point I will sell T bills and cash towards long term bonds as their bond price will appreciate.
I have a 2 & 3 year T-note in account , 3.75% & 4.25% rate. I may have started to early purchasing longer maturities , so will someone tell when to go longer. HA HA !! Next purchase will be another 2 year followed by a 3 year T-Note. I don't want to be late when the light turns green. Rolling longer, Derf
"So, you will start out with an edge of 63 +12.5 = 75.5 bps with FRN." Isn't it where you end that counts ? @yogibearbull I'm seeing red on the T-Notes, but once rates start to fall, that is hopefully they do, then the red should start to reverse. When I'm talking red, that is shown in Schwab account, so think that is the difference if I had rolled 1 month T-Bills. YBB any thoughts on that last statement ? Thanks , Derf
It seems to me that all of this "seeing red" is predicated on wanting to sell your Treasury or CD instruments before they mature. If you are in it for the income, and plan to keep the investment until maturity, why would you care what the current "value" is? When it matures the value will be 100%.
a married couple filing jointly may exclude twice the given limit. This makes it sound as if a couple gets a combined exclusion that's double the individual exclusion. That's not quite accurate.
The exclusion is available for the taxpayer and his/her spouse; however, each must qualify on a separate basis.
More importantly, the Feb 3, 2023 report puts this tax break in perspective by identifying the taxpayers targeted for this benefit:"PUBLIC BENEFIT The exclusion provides relief to lower-income retiree households..."
No matter. There are lots of people who don't benefit from this break - because they're not lower income, or because they're not over age 62 (retired or not), or maybe they don't live in Georgia all the time if at all.
Even if the difference is 0.2-0.4% annually why bother? Good question. Why bother making a point of such a small difference?
Looking at treasuries at Schwab with a maturity of 9/15 to 9/30 and I see YTM of 4.09 to 5.066. I will stick with my Schwab Treasury Obligations Money Fund – Ultra Shares (SCOXX) that pay "only" 5.2%
The idea is to make meaningfully more money and not concentrate on 0.2-0.4% more per year. I just don't like the inconvenience of CD and treasuries. I want to own funds+MM that I can trade any day when I see an opportunity. Several days of investing in my bond mutual funds on one trade can make much more than 0.4%. If I wanted to use treasuries I may consider something like TBIL where it's easier to trade.
I used my real tax software. I entered $140K as capital gains, no other income(just kept $1 for SS and $1 for conversion since I want to keep these entries), and both of our ages 65.
You can see below that each one of us got a $65K Retirement Income Exclusion.
When I entered $140K capital gains, Fed taxes came at $15,720...GA taxes=0. Basically, $140K FEDERAL ADJUSTED GROSS INCOME (AGI) = $10K GEORGIA ADJUSTED GROSS INCOME (AGI)
When I entered $150K capital gains, Fed taxes came at $17,920...GA taxes=$48. Basically, $150K FEDERAL ADJUSTED GROSS INCOME (AGI) = $20K GEORGIA ADJUSTED GROSS INCOME (AGI). Looking at big numbers shows that it's a sweet deal, most retirees filing jointly with age greater than 65 wouldn't pay GA taxes on income close to $150K.
BTW, the Treasury FRN ETFs are USFR, TFLO. All references to those have now rolled off to Page 1. I did execute ultra-ST ICSH to USFR switch last week.
So, I am doing both - using FRN Auctions (that will tie up money for 2 years) and FRN ETF USFR that is liquid.
Check multiyear histories of prices for FRNs or USFR - because of the weekly rate reset feature, their duration are VERY short and actual-prices (i.e. w/o reinvestment) don't move much. StockCharts show USFR (adjusted-prices; default) and _USFR (actual-prices) for 1 yr (default); change to February 2014 inception for longer history. BTW, FRNs originated in the US in 2013/14. https://stockcharts.com/h-perf/ui?s=USFR&compare=_USFR&id=p34790200927
I want to own funds+MM that I can trade any day when I see an opportunity. Treasuries are just as liquid as funds. Though convenience can be subjective.
You can see below that each one of us got a $65K Retirement Income Exclusion.
Actually from what you posted I can't see that you're not being taxed on marginal SCOXX income (well, the non-Treasury part of it anway). That's because you put in just a $1 placeholder for your conversions. If you're really converting more than $7100, then each marginal dollar of SCOXX income got taxed at 5.75% x (1 - 18.2%) as I described previously.
If this exclusion works for you, great. That doesn't mean it works for most people.
I changed CG=100K + coverted $25K from T-IRA to taxable for each person = $150K income..and the numbers for Fed+State tax stayed the same.
Again, even if I was 60 years old and not living in GA, I would not buy CD/treasuries direct. MM or ETF=TBIL for treasuries allow me a much easier and more flexible way. It's especially easier with big numbers. Most household retirees have small portfolios, about $400K. Most don't need income beyond 80-100K (including SS)
I agree with you that if one wants to quickly shift from one investment to another it is much easier if the two investments are held at the same institution. However, it is no more difficult to trade TBIL than it is to trade T-Bill CUSIP 912796CS6 (maturing Sept 28) at a brokerage.
It's apples and oranges to discuss "buy[ing] CD/treasuries direct" after starting with "Looking at treasuries at Schwab with a maturity of 9/15 to 9/30".
You would not buy CD/treasuries direct. How about MMFs? Would you buy a MMF direct from the fund family (e.g. IDSXX from Columbia Threadneedle)?
It looks like the ease and flexibility you're describing is something associated with the institution (brokerage) rather than the type of security being traded.
Among the T-Bill ETFs with < 3m maturity, what is the attraction (besides a catchy name) of smallish TBIL with a higher ER and from a relatively new firm (with 10 ETFs, all 2022- ) ?
BIL AUM $28.43 billion, ER 14 bps, inception 5/25/07
SGOV AUM $13.14 billion, ER 7 bps, inception 5/26/20
TBIL AUM $1.51 billion, ER 15 bps, inception 8/8/22
TBIL did have the advantage of starting in rising T-Bill rate environment, but a more detailed look at StockCharts shows that advantage was gone in 7 months after the inception.
I am familiar with MINT, Pimco's ACTIVE ultra-ST "black box". "Enhanced" means that it has little Treasuries, but lots of corporates and securitized stuff. Only 41.28% is AAA. Some maturities are 7-10 yrs, some have unknown maturities (?), so these may be floating-rate stuff (then, the duration is just the reset period). Anyway, it isn't a simple T-Bill ETF with under 3m maturities - as BIL, SGOV, TBIL are, and one wouldn't expect any Pimco fund to be simple. I never warmed up to MINT.
There are also ultra-ST ETFs that have T-Bills under 1y and some that have non-Treasury stuff too (MINT would be in that group). ETFdb shows 28 ultra-ST ETFs; newer TBIL is not included. https://etfdb.com/etfs/bond-duration/ultra-short-term/
MINT AUM $9.2 billion, ER 36 bps, inception 11/16/09
msf: However, it is no more difficult to trade TBIL than it is to trade T-Bill CUSIP 912796CS6 (maturing Sept 28) at a brokerage
FD: since I never traded CDs or treasuries, I called Schwab's bond desk. If you sell a CD before maturity, you'll incur an early withdrawal penalty. Penalties are typically specified as a period of interest. If you want to buy a big amount, let's say a million dollars, you are going to use several institutions. T-Bill CUSIP trading: no commission for buy/sell. I can buy huge amounts, easily over a million, all in one trade and sell all. I looked at selling, the bid-ask is very low. Example: for 912797FK8 bid-ask are 98.738-98.740. Settlement is one day, while TBIL=ETF is 2 days. But, there is a fee of $1 per each 1000, max is $250. What is the bid-ask for TBIL, right now 50-50.1...USFR bid-ask 50.48-50.49 both are very low and similar to T-Bill CUSIP.
Bottom line: T-Bill cusip has more flexibility than CD + no state tax + I can buy a lot more using one cusip. Right now Treasuries for 3-6 months pay more than CD, easy call. As a trader, I'm still leaning toward TBIL/USFR vs T-Bill cusip.
Looking at ST performance for USFR,TFLO,TBIL,VMFXX since 07-01-2023(to capture the start of VMFXX=MM) and USFR leads the 3 ETFs, but VMFXX isn't far. See (https://schrts.co/fWAuiQVV)
I didn't mention CDs in this thread. They're not for trading. Either you were responding to someone else or brought them up yourself.
If Schwab mentioned CD early withdrawal penalties, I'm a little surprised. Generally (though not always) brokered CDs cannot be redeemed early except upon death. They can (maybe) be sold through a brokerage, but with a large spread. To be used as an escape clause (emergencies) and not as part of a routine strategy.
If you're going to buy $1M in CDs, you might use several institutions. That would depend, first, on how sanguine you were about an institution's solvency. FDIC insurance might not be of major concern. While I don't recommend that approach, I have gone over FDIC limits on rare occasions, though either for very short periods of time or with only slight excesses.
Second, you and your spouse (referencing your tax return above) can get $1M of FDIC insurance via two individual $250K accounts and a joint $500K account at a single institution. https://edie.fdic.gov/calculator.html
Third, many banks participate in IntraFi's CDARS program, giving you access to millions of dollars of FDIC insurance for CDs via a single institution.
Finally, with short term T-bills currently yielding more than CDs of similar maturity, with their state tax exemption, and with their ease of selling (whether of necessity or by a trader), I agree that for savers and traders alike this is an easy call.
Finally, with short term T-bills currently yielding more than CDs of similar maturity, with their state tax exemption, and with their ease of selling (whether of necessity or by a trader), I agree that for savers and traders alike this is an easy call.
Hi, I have question on tax information of USFR. WisdomTree website has a spreadsheet file with tax information(https://www.wisdomtree.com/investments/resource-library/fact-sheets-reports#tab-EFFF2124-78F5-46F4-B816-6D4252E4BC97). The data shows monthly dividend including small capital distribution in early December in recent years. If you hold this fund, will the corresponding 1099 Form indicate how much dividend is from treasury(for state tax exempt purpose) among all dividends? Many other treasury ETFs (TBIL, TFLO) publishes how much percentage of earnings are from the treasury, thus not difficult to figure out yourself if not on 1099 form. Thanks.
WisdomTree presentaion isn't very user-friendly. But from your link (repeated below), Fund Reports & Schedule/Tax Supplement Reports, you can Download "WisdomTree Fund Distribution 2022 - Tax Supplement". Then in the Secondary Layout tab, Col 11, you will find % from Treasury obligations. For USFR, that was 99.666489% in 2022. Unfortunately, this info isn't in 1099 and you have to hunt for it at fund websites. https://www.wisdomtree.com/investments/resource-library/fact-sheets-reports#tab-EFFF2124-78F5-46F4-B816-6D4252E4BC97
This is one of the few downsides of investing via brokerages (necessary for ETFs) rather than directly with fund companies.
When your 1099's come from the fund companies, they usually include all this supplemental information personalized to your account. When investing via a brokerage, you may have to go find each sponsor's website, find the supplemental information, and apply it to your specific account.
Brokerages are getting better at aggregating this information for their customers, but I still find it necessary to go scrounging websites for some info each tax season.
WisdomTree presentaion isn't very user-friendly. But from your link (repeated below), Fund Reports & Schedule/Tax Supplement Reports, you can Download "WisdomTree Fund Distribution 2022 - Tax Supplement". Then in the Secondary Layout tab, Col 11, you will find % from Treasury obligations. For USFR, that was 99.666489% in 2022. Unfortunately, this info isn't in 1099 and you have to hunt for it at fund websites. https://www.wisdomtree.com/investments/resource-library/fact-sheets-reports#tab-EFFF2124-78F5-46F4-B816-6D4252E4BC97
Comments
Rolling longer, Derf
2-yr T-Note (regular) 4.92% (fixed; 8/18/23)
2-yr FRN 3-mo T-Bill yield (5.55%, 8/18/23, but will vary weekly) + spread (around +12.5 bps at 8/23/23 Auction).
So, you will start out with an edge of 63 +12.5 = 75.5 bps with FRN.
Thanks , Derf
I am not thinking of rate cuts until late-2024, if then.
I used my real tax software. I entered $140K as capital gains, no other income(just kept $1 for SS and $1 for conversion since I want to keep these entries), and both of our ages 65.
You can see below that each one of us got a $65K Retirement Income Exclusion.
When I entered $140K capital gains, Fed taxes came at $15,720...GA taxes=0. Basically, $140K FEDERAL ADJUSTED GROSS INCOME (AGI) = $10K GEORGIA ADJUSTED GROSS INCOME (AGI)
When I entered $150K capital gains, Fed taxes came at $17,920...GA taxes=$48. Basically, $150K FEDERAL ADJUSTED GROSS INCOME (AGI) = $20K GEORGIA ADJUSTED GROSS INCOME (AGI).
Looking at big numbers shows that it's a sweet deal, most retirees filing jointly with age greater than 65 wouldn't pay GA taxes on income close to $150K.
So, I am doing both - using FRN Auctions (that will tie up money for 2 years) and FRN ETF USFR that is liquid.
Check multiyear histories of prices for FRNs or USFR - because of the weekly rate reset feature, their duration are VERY short and actual-prices (i.e. w/o reinvestment) don't move much. StockCharts show USFR (adjusted-prices; default) and _USFR (actual-prices) for 1 yr (default); change to February 2014 inception for longer history. BTW, FRNs originated in the US in 2013/14.
https://stockcharts.com/h-perf/ui?s=USFR&compare=_USFR&id=p34790200927
Treasuries are just as liquid as funds. Though convenience can be subjective.
You can see below that each one of us got a $65K Retirement Income Exclusion.
Actually from what you posted I can't see that you're not being taxed on marginal SCOXX income (well, the non-Treasury part of it anway). That's because you put in just a $1 placeholder for your conversions. If you're really converting more than $7100, then each marginal dollar of SCOXX income got taxed at 5.75% x (1 - 18.2%) as I described previously.
If this exclusion works for you, great. That doesn't mean it works for most people.
In the end, this exclusion applies to a sliver of a sliver of a sliver of taxapayers. As stated in the piece you cited, they are those taxpayers who are (i) lower income (ii) retiree households (iii) in Georgia.
https://www.kiplinger.com/retirement/602202/taxes-in-retirement-how-all-50-states-tax-retirees
Again, even if I was 60 years old and not living in GA, I would not buy CD/treasuries direct. MM or ETF=TBIL for treasuries allow me a much easier and more flexible way. It's especially easier with big numbers.
Most household retirees have small portfolios, about $400K. Most don't need income beyond 80-100K (including SS)
It's apples and oranges to discuss "buy[ing] CD/treasuries direct" after starting with "Looking at treasuries at Schwab with a maturity of 9/15 to 9/30".
You would not buy CD/treasuries direct. How about MMFs? Would you buy a MMF direct from the fund family (e.g. IDSXX from Columbia Threadneedle)?
It looks like the ease and flexibility you're describing is something associated with the institution (brokerage) rather than the type of security being traded.
BIL AUM $28.43 billion, ER 14 bps, inception 5/25/07
SGOV AUM $13.14 billion, ER 7 bps, inception 5/26/20
TBIL AUM $1.51 billion, ER 15 bps, inception 8/8/22
TBIL did have the advantage of starting in rising T-Bill rate environment, but a more detailed look at StockCharts shows that advantage was gone in 7 months after the inception.
There are also ultra-ST ETFs that have T-Bills under 1y and some that have non-Treasury stuff too (MINT would be in that group). ETFdb shows 28 ultra-ST ETFs; newer TBIL is not included.
https://etfdb.com/etfs/bond-duration/ultra-short-term/
MINT AUM $9.2 billion, ER 36 bps, inception 11/16/09
FD: since I never traded CDs or treasuries, I called Schwab's bond desk.
If you sell a CD before maturity, you'll incur an early withdrawal penalty. Penalties are typically specified as a period of interest. If you want to buy a big amount, let's say a million dollars, you are going to use several institutions.
T-Bill CUSIP trading: no commission for buy/sell. I can buy huge amounts, easily over a million, all in one trade and sell all. I looked at selling, the bid-ask is very low. Example: for 912797FK8 bid-ask are 98.738-98.740. Settlement is one day, while TBIL=ETF is 2 days. But, there is a fee of $1 per each 1000, max is $250.
What is the bid-ask for TBIL, right now 50-50.1...USFR bid-ask 50.48-50.49 both are very low and similar to T-Bill CUSIP.
Bottom line: T-Bill cusip has more flexibility than CD + no state tax + I can buy a lot more using one cusip. Right now Treasuries for 3-6 months pay more than CD, easy call.
As a trader, I'm still leaning toward TBIL/USFR vs T-Bill cusip.
Looking at ST performance for USFR,TFLO,TBIL,VMFXX since 07-01-2023(to capture the start of VMFXX=MM) and USFR leads the 3 ETFs, but VMFXX isn't far. See (https://schrts.co/fWAuiQVV)
If Schwab mentioned CD early withdrawal penalties, I'm a little surprised. Generally (though not always) brokered CDs cannot be redeemed early except upon death. They can (maybe) be sold through a brokerage, but with a large spread. To be used as an escape clause (emergencies) and not as part of a routine strategy.
If you're going to buy $1M in CDs, you might use several institutions. That would depend, first, on how sanguine you were about an institution's solvency. FDIC insurance might not be of major concern. While I don't recommend that approach, I have gone over FDIC limits on rare occasions, though either for very short periods of time or with only slight excesses.
Second, you and your spouse (referencing your tax return above) can get $1M of FDIC insurance via two individual $250K accounts and a joint $500K account at a single institution.
https://edie.fdic.gov/calculator.html
Third, many banks participate in IntraFi's CDARS program, giving you access to millions of dollars of FDIC insurance for CDs via a single institution.
Finally, with short term T-bills currently yielding more than CDs of similar maturity, with their state tax exemption, and with their ease of selling (whether of necessity or by a trader), I agree that for savers and traders alike this is an easy call.
Edit/Add. Current coupon 5.425%
https://www.wisdomtree.com/investments/resource-library/fact-sheets-reports#tab-EFFF2124-78F5-46F4-B816-6D4252E4BC97
When your 1099's come from the fund companies, they usually include all this supplemental information personalized to your account. When investing via a brokerage, you may have to go find each sponsor's website, find the supplemental information, and apply it to your specific account.
Brokerages are getting better at aggregating this information for their customers, but I still find it necessary to go scrounging websites for some info each tax season.