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NY High Income Saving Investing

zz
zz   |     |   29 posts since 2014

I've been using this site for years for reasons everybody reading this is aware of (fantastic job Ken!). I saw Ken also includes mutual fund money market rates, which haven't really looked as good as banks and credit unions. For example, the Vanguard Prime Money Market rate is 1.12%, which isn't shabby, but there is a long list of banks and credit unions that pay more than that. What is interesting to people in high tax states (like NY and CA) and have high incomes is something like the Vanguard NY Municipal Monday Market which is paying 0.78%. I grant you, 0.78% doesn't sound exciting but becomes exciting at the high tax brackets:

Fed Tax Rate = 39.6%

NY Tax Rate = 8.82%

NY Deduction = -3.49272%

Pease limitation= 1.188%

Tax Rate = 46.11528%

Fed/State Tax Free Mult = 1.8558x

The negative NY deduction is due to the fact that federal law currently allows state taxes to be deducted (avoiding double taxation, but Trump's new plan would allow double taxation). The Pease limitation is due to the fact that in the higher brackets you can't itemize all your deductions (doesn't even go into you can't use the personal exemption for yourself, spouse or kids). So every dollar earned is effectively taxed at 46.11528% (yet all we hear about is how the rich don't pay their fair share, even though the top 1% of tax payers account for nearly half of all tax revenue and 47% of the population pays nothing in federal taxes, look it up if you don't believe this). Sorry, back to the task at hand. The 46.11528% tax rat makes the 0.78% effectively a 0.78*1.8558 = 1.45% saving rate! So the Vanguard NY Municipal Money Market is now at the top of the list for high income tax payers living in NY. I'm not saying this should be tracked on this site as this applies to very few people but was surprised myself at how important looking into after tax savings can be. People in lower tax states and lower tax rates would still benefit but to a lesser degree.

People at work argued that this is just another benefit for the rich. The way to take away this "benefit" would be to tax the rich at lower tax rates. I'm not saying the rich should be paying less taxes or the poor should be more taxes but it rankles me when people complain the rich are not paying their fair share when half the country is paying nothing and the those in the top tax bracket is forced to pay half of their income to the government. Yes, the rich do avoid paying by taking deductions but by far the largest deduction the rich take is giving their money away to charity. I believe they do this as they'd rather see their money be used more effectively by good charities than the wasteful government.




zz
zz   |     |   29 posts since 2014
I have to update the above post as the Vanguard NY Municipal Money Market is now paying 1.26% and the new tax laws for 2018 need to be taken into account. For the highest federal and NY State tax bracket the new total tax is:

Fed Tax Rate = 37%
NY Tax Rate = 8.82%
NIIT Tax Rate = 3.8%
Total Tax Rate = 49.62%
Fed/State Tax Free Mult = 1.985x

So the 1.26% that the Vanguard NY Money Market is now paying is equivalent to a 2.5% savings account at a bank! Of course, being a Money Market, this 1.26% rate gets buffeted around by market forces everyday, but right now a 2.5% savings account rate is pretty hard to beat. Not in the highest tax bracket? What if your income is $50,000 per year and your single. Here is what the equivalent 1.26% looks to you:

Fed Tax Rate = 22%
NY Tax Rate = 6.45%
Total Tax Rate = 28.45%
Fed/State Tax Free Mult = 1.4x

So now the 1.26% Vanguard NY Money Market looks like a 1.76% savings account rate! I think this still deserves the ! that I put at the end. Since state taxes are no longer deductible and the Pease limitation has ended, figuring out your specific advantage is now fairly easy to calculate.

Effective rate = Muni Rate*(1/(1-TotalTaxRate))
so for the $50,000 case in NY listed above invested in Vanguard NY Muni Money Market:
Effective rate = 1.26%*(1/(1-.2845) = 1.26%*(1/.7155) = 1.26%*(1.3976) = 1.76%
Look at your own bracket and figure out how good this may (or may not) be for you.

I think people should take a serious look at this compared to savings account rates. The only caveat is these muni money market rates have spiked quite a bit as of late and I don't know why. They may go down as fast as they go up but since you can pull your money out at any time, there is no harm in riding it while it is good. I happened to be a Vanguard person living in NY but there are plenty of other muni money market funds like this so take your pick.
Bozo
Bozo   |     |   1,298 posts since 2011
zz, you get my personal award for "taxable equivalent yield" nerd award of the week. I'm not sure that a single person earning $50,000/yr is in the 22% marginal bracket (federal), but the math is the math.

$50,000 - 12,000 = $38,000.

Tax: $9525 X 10% = $953
$28475 X 12%=$3417
Total tax = $4370

Marginal rate = 12%
Effective rate = 11.5% X Taxable Income
Bozo
Bozo   |     |   1,298 posts since 2011
zz, I'm using the new standard deduction and rates above.
zz
zz   |     |   29 posts since 2014
Bozo, Of course you're correct. For $51,000 the above would be correct.
me1004
me1004   |     |   795 posts since 2010
I note, the Vanguard Prime Money Market is now at 1.36%.
Bozo
Bozo   |     |   1,298 posts since 2011
Me1004, for some weird reason, VMMXX has a rather high ER. You'll need to subtract the ER from the SEC yield to get net yield. I crunched the math, and got an effective yield in the 1.25% range. I then double-checked the dividends, and got the same result.
alan1
alan1   |     |   288 posts since 2015
Why do you need to subtract the expense ratio? You seem to be saying that the the SEC yield is calculated without regard to fees and expenses. I don't _think_ that's the case, but I may well be incorrect (there might some some fees or expenses that the SEC yield does not take into consideration). Clarification of your statement would be helpful. Thanks.
Bozo
Bozo   |     |   1,298 posts since 2011
alan1, I always thought VG's SEC yields were net of ERs, but then I looked at VMMXX (both at M* and VG) and did the math. I'd be happy to stand corrected.
alan1
alan1   |     |   288 posts since 2015
Morningstar lists the VMMXX 7-day yield as 1.36%. http://financials.morningstar.com/money-market/quote?t=VMMXX®ion=usa&culture=en-US

Morningstar defines 7-day yield as: "Yield the fund underlying portfolio generated after net expense. The net expense may includes subsidy." http://financials.morningstar.com/money-market/quote

I'm hesitant to question the faculty of the Department of Arithmetic at Bozo University, but ...
Bozo
Bozo   |     |   1,298 posts since 2011
I was never a math wiz, but . . . If you go to M* and snoop around it appears the effective yield was close to 1.14% at the end of November. I have no idea how I initially calculated close to 1.25%. I suspect I used the "rounded" dividend from VG.
Bozo
Bozo   |     |   1,298 posts since 2011
alan1, when you go to M* (VMMXX), click on the "Distribution" tab.
zz
zz   |     |   29 posts since 2014
The SEC yield is the actual yield, from this site:

https://www.investopedia.com/terms/s/secyield.asp

What is the 'SEC Yield'

The SEC yield is a standard yield calculation developed by the U.S. Securities and Exchange Commission (SEC) that allows for fairer comparisons of bond funds. It is based on the most recent 30-day period covered by the fund's filings with the SEC. The yield figure reflects the dividends and interest earned during the period after the deduction of the fund's expenses. It is also referred to as the "standardized yield."

Note that the SEC yield already takes the funds expenses into account.
Bozo
Bozo   |     |   1,298 posts since 2011
zz, yes, I always thought SEC yield was net of fees and ERs. But while snooping around VMMXX, the math just didn't add up. I suspect the "Distribution" tab at Morningstar is the most credible. That tab shows an effective yield (1.14%) end-of-November, which is quite close to your original estimate for VMMXX. I'm almost tempted to plop $10,000 into VMMXX and see what happens. "Almost tempted" being the operative words.
alan1
alan1   |     |   288 posts since 2015
Bozo -- re Morningstar distribution yield -- it's a trailing yield based on previous 12-month distributions and previous 6 month net asset values. It's not a measure of current annualized yield. https://admainnew.morningstar.com/webhelp/glossary_definitions/mutual_fund/12-Month_Yield.htm
zz
zz   |     |   29 posts since 2014
Yes, the Vanguard Prime Money Market is the non municipal rate and offers no tax advantages, it's like a savings account rate. The Vanguard NY Muni Money Market is Federal and NY State Tax free and effectively boosts the effective yield as high as 2.5% depending on your Tax Bracket. In a low tax bracket in a low tax state I'd think some of the bank rates (as high as 1.65% and with FDIC) would be better than the Vanguard Prime Money Market.
Ricochet
Ricochet   |     |   459 posts since 2010
Ken does not follow Mutual Fund Money Market rates.

This site features Bank / Credit Union ..Money Market Accounts
zz
zz   |     |   29 posts since 2014
I beg to differ. Look at the bottom of each "Best Bank Account Interest Rates":

https://www.depositaccounts.com/blog/bank-accounts-survey

and you'll find:

Bank Account Alternatives - NOT FDIC Insured

Investment Discussion Forum

Institution Rates Notes
Duke Energy PremierNotes 1.40% rate for $50K+ Duke Energy PremierNotes review
Vanguard Prime Money Market Fund 1.34% 7-day yield
Ford Interest Advantage 1.20% rate for $50k+ Ford Interest Advantage review
Ally Financial Demand Notes 1.15% rate for $50k+
Vanguard Tax-Exempt Money Market Fund 1.07% 7-day yield
Fidelity Money Market Fund 1.00% 7-day yield
Fidelity Municipal Money Market Fund 0.63% 7-day yield

You can see he specifically mentions the Vanguarge Prime Money Market Fund at 1.34% and the Tax_Exempt Money Market Fund at 1.07% (now at 1.29%). He'll also mention them now and then in passing. He also tracks US Saving Bonds
Ricochet
Ricochet   |     |   459 posts since 2010
Had not ever really seen that before. It must be a once in a blue moon posting schedule.
Though I will admit no interest in it, I could have turned a blind eye to it.
%)
Bozo
Bozo   |     |   1,298 posts since 2011
Richochet, is it possible to obsess too much over the effective yield of a money market account? Is there a clinical name for the disorder?
Bozo
Bozo   |     |   1,298 posts since 2011
Doctor: "I understand you're having trouble sleeping. What might be troubling you?"
Bozo: "I can't figure out the effective yield of VMMXX. I'm all confused".
Doctor: "I can solve all your issues. My rate is $500/hour, one hour minimum. Your insurance doesn't cover this consultation. Have a nice day."
Ricochet
Ricochet   |     |   459 posts since 2010
I live the simplest live I can, sitting here on my sack of seeds
zz
zz   |     |   29 posts since 2014
The site is about getting the best interest rates. I believe that really means keeping as much of the interest as possible. What if there was a fund that gave 5% interest but the government taxed 100% of it? Does it sound good to you? Wow, 5% FDIC insured and guaranteed but the government collects all the proceeds in the form of tax.

The amount of the interest that you get to keep is really all that matters. I find it amusing that the people responding to my post on this not only have no interest in this, but want to go as far as to ridicule someone who is trying to help others who can benefit from it.

I just think there are others out there who are not commenting and perhaps thinking that this makes sense for them.
Bozo
Bozo   |     |   1,298 posts since 2011
zz, I suspect all DA readers (and posters) care about "bucks in the bank" (i.e., what we get to keep after taxes, inflation, and expense ratios). Nobody is ridiculing you, as far as I can tell. My post above (with the fictitious doctor) was, if anything, self-deprecating. Do I try to maximize my "bucks in the bank"? Sure. Do I obsess too much about it? Ask my wife.

Anyway, have a happy and prosperous New Year.
zz
zz   |     |   29 posts since 2014
Yes, of course. Have a happy and prosperous New Year. All the best.
zz
zz   |     |   29 posts since 2014
Vanguard NY Muni Market savings account effective interest rate benefits depending on your AGI
NY Tax Free Rate = 1.41% as of April 12, 2018
Standard Deduction = $12,000 $24,000
FED Rate Individuals Married Filing Jointly
10% 0                         0
12% $9,526             $19,051
22% $38,701           $77,401
24% $82,501           $165,001
32% $157,501         $315,001
35% $200,001         $400,001
37% $500,000         $600,000

Standard Deduction = $8,000 $16,000
NY Rate Individuals Married Filing Jointly
4% $0                       $0
4.50% $8,500           $17,150
5.25% $11,700         $23,600
5.90% $13,900         $27,900
6.45% $21,400         $43,000
6.65% $80,650         $161,550
6.85% $215,400       $323,200
8.82% $1,077,550    $2,155,350
NIIT $250,000 3.80%
                                                         Single                                           Married
              Single  Single      Single Equivalent Married Married Married Equivalent
                 Fed       NY         Both     Interest   Fed     NY        Both        Interest
$20,000   10.00%  5.25%   15.25%   1.66%      0%   4.00%    4.00%   1.47%
$30,000   12.00%  6.45%   18.45%   1.73%    10%   4.00%  14.00%   1.64%
$40,000   12.00%  6.45%   18.45%   1.73%    10%   5.25%  15.25%   1.66%
$50,000   12.00%  6.45%   18.45%   1.73%    12%   5.90%  17.90%   1.72%
$60,000   22.00%  6.45%   28.45%   1.97%    12%   6.45%  18.45%   1.73%
$80,000   22.00%  6.45%   28.45%   1.97%    12%   6.45%  18.45%   1.73%
$90,000   22.00%  6.65%   28.65%   1.98%    12%   6.45%  18.45%   1.73%
$100,000 24.00%  6.65%   30.65%   2.03%    12%   6.45%  18.45%   1.73%
$110,000 24.00%  6.65%   30.65%   2.03%    22%   6.45%  28.45%   1.97%
$160,000 24.00%  6. 65%  30.65%   2.03%    22%   6.45%  28.45%   1.97%
$170,000 32.00%  6.65%   38.65%   2.30%    22%   6.45%  28.45%   1.97%
$180,000 32.00%  6.65%   38.65%   2.30%    22%   6.65%  28.65%   1.98%
$190,000 32.00%  6.65%   38.65%   2.30%    24%   6.65%  30.65%   2.03%
$210,000 32.00%  6.65%   38.65%   2.30%    24%   6.65%  30.65%   2.03%
$220,000 35.00%  6.65%   41.65%   2.42%    24%   6.65%  30.65%   2.03%
$230,000 35.00%  6.85%   41.85%   2.42%    24%   6.65%  30.65%   2.03%
$330,000 38.80%  6.85%   45.65%   2.59%    24%   6.65%  30.65%   2.03%
$410,000 38.80%  6.85%   45.65%   2.59%    32%   6.85%  38.85%   2.31%
$420,000 38.80%  6.85%   45.65%   2.59%    32%   6.85%  38.85%   2.31%
$430,000 38.80%  6.85%   45.65%   2.59%    35%   6.85%  41.85%   2.42%
$510,000 38.80%  6.85%   45.65%   2.59%    35%   6.85%  41.85%   2.42%
$520,000 40.80%  6.85%   47.65%   2.69%    35%   6.85%  41.85%   2.42%
$530,000 40.80%  6.85%   47.65%   2.69%    35%   6.85%  41.85%   2.42%
$540,000 40.80%  6.85%   47.65%   2.69%    35%   6.85%  41.85%   2.42%
$630,000 40.80%  6.85%   47.65%   2.69%    37%   6.85%  43.85%   2.51%
$2,200,000 40.80% 8.82% 49.62%   2.80%    37%   8.82%  45.82%   2.60% 

So for a single taxpayer making $60,000 a year (AGI), 1.41% is equivalent to 1.97%


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