Taxable or Tax-Exempt Money Market?

A glance at the Vanguard website shows that tax-exempt money markets are once again very attractive relative to their taxable brethren. Today, the Vanguard Prime Money Market has a 7-day yield of 3.58%. The Vanguard Tax-Exempt Money Market has a 7-day yield of 3.30%. The 3.3% tax-exempt yield translates into the following tax-equivalent yields:

25% Fed Income Tax Bracket –> 4.4%
28% Fed Income Tax Bracket –> 4.6%
33% Fed Income Tax Bracket –> 4.9%
35% Fed Income Tax Bracket –> 5.1%

Obviously, most folks earning over 32k per year would do significantly better in the Tax-Exempt Money Market at this time. You should look up your anticpated 2008 Federal Tax Brackets.

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