Why is this is better than an ETF treasury fund, CDs, and high-interest savings accounts?
Answer: Treasury Bills "interest" is state & local tax-free on the money earned. So if you're in a high-income tax state and city they're worth it.ETF fund aren't always 100% in treasuries and charge fees.
Question (asked a dozen or more times in the thread) : How does bill interest work?
Answer: Treasury Bills "interest" is the difference between face value and purchase price. You buy a $10k bill at less than $10k, upon maturity, it is worth $10k. The difference between purchase price and maturity value is your "interest."
Tax Equivalent Yield Calculator For Savings Bonds, Treasury Bills, and Tax-Exempt Money Market Funds
https://www.mymoneyblog
How Buy and Sell Treasury Bills
https://thefinancebuff.com/treasury-bills-cd-money-market.html
When are the auctions? When can I place an order?
4, 8, 13, 17, and 26 week bills are auctioned every week.
52 week bills are auctioned every four weeks.
You can see recent results and the planned schedule at: https://www.treasurydir
4 and 8 week bills are usually announced on Tuesday, auctioned on Thursday, and settle on Tuesday.
17 and week bills are usually announced on Tuesday, auctioned on Wednesday, and settle on Tuesday.
13 and 26 week bills are usually announced on Thursday, auctioned on Monday, and settle on Thursday.
52 week bills are usually announced every 4th Thursday, auctioned on Tuesday, and settle on Thursday.
At a brokerage, you can usually can place an order between the announcement and auction.
At TreasuryDirect, you can place an order up to about 8 weeks in advance.
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Treasury BILLS are currently paying over 5% for various maturity lengths under 1 year. These can be bought through most brokerages even without a TreasuryDirect account.
Treasury BONDS are paying 4% or less and have 20 or 30 year terms.
The 4 week bill ordering opens tomorrow 8/8, the deadline to buy it is sometime Thursday 8/10 morning depending on where you are buying it and it settles on 8/15.
On TD Ameritrade, they take your money on the 10th (take it out of the money you can trade with when you hit purchase which can be as early as the 8th) and buy the bill on the 15th during time which you earn no interest. Thus the reason that I stopped buying 4 and 8 week bills at auction. Secondary markets settle the next day so often a better deal. Treasury direct does not take the money from your bank account till the day it settles and Vanguard keeps it in the settlement fund earning interest till the day it settles as well. Not sure about the other brokerage houses. Also, not sure if you rollover the t-bills how the time between redemption and the next auction works as far as any interest you are losing as that is often a week of interest as well.
FYI, if you do the math, 4 weeks for $10,000 usually gets you about $40 in interest for letting them hold your money for 5 weeks.
The Monday auctions for 3 months and six months settle on Thursday so much less time to hold your money for nothing and less redemption downtime.
The money market funds often have repurchase agreements that are taxed at the state and local level but obviously more liquid. Am looking into the ETFs now.
Good luck to everyone!
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I've been buying Money Market funds that only hold Treasuries, and I expect to get 90%+ state tax exemption.
$1000
1 Year 5.25 interest = $52.50 - 24% ($12.60) - 9.3% ($4.96) = 34.94 (or approximately 3.5% yield)
1 Year T-Bill at 3.99 = $39.90 interest - 24% ($9.58) = $30.32
Right. The original calculation doesn't work out.
I believe the simplest way to figure out how much equivalent interest in a T-Bill is just multiply the yield * your state tax rate. 5% yield X 10% state tax rate = .5%, meaning you'd need a t-bill of 4.5% to beat a 5% bank/savings account/CD yield if your state tax rate is 10%
A State taxable CD at 5.25%: 5.25%/(1-0.24)*(1-0.24-0.093) = 4.61% equivalent in a T-Bill.
To double check:
5.25%*(1-0.24-0.093) = 3.50% after tax
4.61%*(1-0.24) = 3.50% after tax
Notice that as the Federal and/or state marginal tax rate increases, the tax advantage of the state exemption does also. Remember to include the 3.8% NIIT if you're subject to it.
It's extra work to get the state tax exemption compared with holding buying Treasury Bills and holding them to maturity.
in U.S. government securities.
I think it's a 50% threshold in California. https://www.marottaonmo
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$1000
1 Year 5.25 interest = $52.50 - 24% ($12.60) - 9.3% ($4.96) = 34.94 (or approximately 3.5% yield)
1 Year T-Bill at 3.99 = $39.90 interest - 24% ($9.58) = $30.32
The calculation doesn't work out.
I believe the simplest way to figure out how much equivalent interest in a T-Bill is just multiply the yield * your state tax rate. 5% yield X 10% state tax rate = .5%, meaning you'd need a t-bill of 4.5% to beat a 5% bank/savings account/CD yield if your state tax rate is 10%
So the formula is:
T-Bill = Savings Acct * ( 1 - Fed Tax Rate - State Tax Rate) / ( 1 - Fed Tax Rate)
Thanks!
I was wondering, were the bonds purchased registered as an individual under your husband's name (with no beneficiary?), or registered as joint owners? My husband & I took some of our tax refund and bought an iBond registered to both our names. I mailed in and converted the paper bond (only way the tax refund did it), and it was entered into my Treasury Direct account as I submitted the conversion paperwork. The woman I talked to on the phone said that either I or my husband could sell it, but my husband would have to 'enter' the bond into his account as the converted bond only showed in mine.
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