James White
James White, CEO of Elm Wealth, a financial advisory firm with about $1.5 billion in assets under management, and coauthor of The Missing Billionaires: A Guide to Better Financial Decisions. ElmWealth.com
Savers reveling in 5% yields on cash in money-market funds got a rude surprise this past April—they owe ordinary income tax on that income…as high as 37% for top earners.
Popular alternative: An ETF that offers a more tax-efficient way to manage your cash by offering performance similar to that of US Treasury bills but without the large tax bill. One option…
Alpha Architect 1-3 Month Box ETF (BOXX) has attracted more than $2 billion in assets. It uses complex options trades on the S&P 500 and other investments. From its December 2022 inception through January 2024, its share price climbed by 5.03% annually, while the Morningstar US 1-3 Month Treasury Bill Index gained 5.12% annually. Instead of receiving regular interest or income distributions from BOXX, you take gains by selling shares of the fund. Hold your shares for more than one year, and the fund says your profits are taxed at long-term capital-gains rates (ranging from 0% to 20% depending upon your income tax bracket).
My take: Hold off on this strategy until later this year when it is hoped the IRS will provide clarity on whether the profits qualify for capital-gains treatment. In the meantime, if you are concerned about cash yields and taxes, consider a Treasury bill fund such as…
SPDR Bloomberg 1-3 Month T-Bill ETF (BIL). Recent yield: 5.18%.
iShares 0-3 Month Treasury Bond ETF (SGOV). Recent yield: 5.28%.
Interest income from these funds still is subject to federal tax at ordinary income tax rates, but it is exempt from state and local taxes, which can be substantial if you live in states such as California, New Jersey, New York or Oregon.
