Tax-exempt money funds may not be suitable for many people. According to www.imoneynet.com, the average seven-day compound yield among taxable money market funds recently was 4.73 percent
A top-bracket investor would net with 3.07 percent, after paying 35 percent to the IRS.
In a 25 percent bracket, an investor would net 3.54 percent, after federal income tax.
Meanwhile, the average seven-day compound yield among tax-free money-market funds was 2.93 percent Thus, high-bracket investors would wind up a little bit ahead, after-tax, and lower-bracket taxpayers would be way ahead, with taxable money market funds.
So who might consider tax-exempt money market funds? High-bracket investors in high-tax states and cities. Investors in states such as California, New York, Ohio, Pennsylvania, and Georgia might be better off in a single-state tax-exempt money fund. With such funds, your interest may not be subject to state, local, or federal income tax.
