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For Most Taxpayers VMFXX Currently Has A Rate Advantage Over VMMXX

RichardW
RichardW   |     |   15 posts since 2019

Unless you live in a state which has no state income tax or you have a very low taxable income, VMFXX currently has a slight tax equivalent rate advantage over VMMXX.

Income from U.S. government obligations is typically exempt from taxation in most states. Check to determine if your state allows you to exclude the income you earn from U.S. government obligations. Here is a link to the percentage of income from U.S. government obligations provided by Vanguard for the 2018 tax year regarding VMFXX (Federal Money Market Fund), and VMMXX (Prime Money Market Fund): https://personal.vanguard.com/pdf/USGO_012019.pdf

Note that the percentage of income from U.S. government obligations for VMFXX it was 77.79%, and for VMMXX it was 28.23%.

As of 7/3/2019, VMMXX had a 7-day average annualized income of 2.33%. For a high income California resident, filing as a single individual, that 2.33% would have a tax equivalent yield of 2.43%. As of 7/3/2019, VMFXX had a 7-day average annualized income of 2.30%. For a high income California resident, filing as a single individual, that 2.30% would have a tax equivalent yield of 2.56% (These results assume the previously mentioned percentages of income from U.S. government obligations in the 2018 tax year are still applicable today. These results also neglect AMT and local income tax if applicable).



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