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Finance & Stock Groups Forum Index » Mutual Funds » Keeping Cash for currrent expenses
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| W. Wells |
 Posted: Sat Jul 21, 2007 3:59 pm |
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Wouldn't it be better to put most of your cash needed for current expenses
in short term bond funds and take the dividends, which has a lower tax rate
than a CD or T-Bill |
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| Flasherly |
| Posted: Sat Jul 21, 2007 6:51 pm |
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On Jul 21, 7:59 am, "W. Wells" <ot...@nc.rr.com> wrote:
Quote: Wouldn't it be better to put most of your cash needed for current expenses
in short term bond funds and take the dividends, which has a lower tax rate
than a CD or T-Bill
Coupon rate vs interest payments vs type of instruments available and
their structure.
http://www.fool.com/FoolFAQ/FoolFAQ0010.htm |
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| Steven L. |
| Posted: Sun Jul 22, 2007 3:43 am |
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W. Wells wrote:
Quote: Wouldn't it be better to put most of your cash needed for current expenses
in short term bond funds and take the dividends, which has a lower tax rate
than a CD or T-Bill
If interest rates are rising, the NAV of the bond fund will decline.
Then when you sell your shares, you'll sell them for a lower NAV than
when you bought them and take a capital loss on the principal.
Bond funds do NOT offer stability of principal.
Check out what happened to bond funds (even short-term bond funds) in
1994, the last year that interest rates rose sharply.
--
Steven D. Litvintchouk
Email: sdlitvin@earthlinkNOSPAM.net
Remove the NOSPAM before replying to me. |
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| clay |
| Posted: Mon Jul 23, 2007 3:43 pm |
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On Jul 21, 7:59 am, "W. Wells" <ot...@nc.rr.com> wrote:
Quote: Wouldn't it be better to put most of your cash needed for current expenses
in short term bond funds and take the dividends, which has a lower tax rate
than a CD or T-Bill
Just put the cash in a high yielding money market ie Vanguard Prime
Money Fund |
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| Mark Freeland |
| Posted: Tue Jul 24, 2007 5:34 am |
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"W. Wells" <otf70@nc.rr.com> wrote in message
news:46a1f51e$1$16545$4c368faf@roadrunner.com...
Quote: Wouldn't it be better to put most of your cash needed for current expenses
in short term bond funds and take the dividends, which has a lower tax
rate than a CD or T-Bill
The only ones who can convert ordinary income into tax-preference-income are
hedge fund managers. For mere mortals, alchemy doesn't work.
Short answer - the dividends are taxed as ordinary income.
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Wrappng securities in mutual funds and distributing income from those
securities usually does not substantially change the character of the
income. Since bonds spin off interest subject to ordinary taxes, the fund
dividends containing that income are non-qualified, and subject to ordinary
income taxes.
There are exceptions to this rule (that tax nature doesn't change), but they
are generally not in your favor. Briefly some examples:
- Convert qualified dividends into ordinary dividends by failing to hold
fund shares 61 days around the ex-div date
- Convert state-tax-exempt muni income into state-taxable income by mixing
with out-of-state bonds in a muni fund (a downside to multi-state muni
funds)
- Lose foreign tax credit by mixing with domestic stocks (a downside to
world funds)
On the plus side, you can arbitrage a long term gain and a short term loss
by buying a dividend and selling the fund 6-12 months after buying.
http://www.fairmark.com/mutual/stcl.htm
Mark Freeland
BnetOnewsX@sbcglobal.net |
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