A portion of money market fund dividends derived from U.S. government obligations may be exempt from state and local income taxes. The link included below provides information regarding the percentage of ordinary dividends from U.S. government obligations for funds from Vanguard in tax year 2024. Since several DA readers have money market funds with Vanguard, this information may be useful in the preparation of their tax returns for tax year 2024. Similar information for Schwab is typically available during the last week of January, while Fidelity information is typically posted in mid-February.
VUSXX (Vanguard Treasury Money Market Fund) had 100.00% of its ordinary dividends from U.S. government obligations in tax year 2024. Vanguard’s normal default settlement account VMFXX (Vanguard Federal Money Market Fund) had 59.87% of its ordinary dividends from U.S. government obligations in tax year 2024.
Note that California, Connecticut, and New York have threshold requirements which require that 50% of the fund’s assets at each quarter-end within the tax year consist of U.S. government obligations. If the fund does not meet the 50% threshold requirement, then none of the dividends will be state tax exempt. Whether a specific fund has met the threshold requirement for tax year 2024 is indicated in the information available from the link provided below.
Money market funds don’t have FDIC coverage, but they do offer a useful alternative to savings accounts for liquidity. Although money market funds are considered extremely low-risk investments, some may include slightly more risk than others. Money market funds which invest predominantly in Treasuries are generally considered to be the safest.
https://investor.vanguard.com/content/dam/retail/publicsite/en/documents/taxes/USGO_012025.pdf
