Tax-efficient ETFs deliver higher after-tax returns than money markets by restructuring income or leveraging tax exemptions.
Three exchange-traded funds are offering after-tax yields exceeding 4 percent, outperforming traditional money market funds for investors in high tax brackets. BOXX, JAAA, and TFLO employ different strategies to minimize tax drag, including converting income to long-term capital gains or utilizing tax-exempt securities.
Short-term Treasury bills currently yield over 4 percent, while 12-month CDs average 1.65 percent. However, taxes can reduce money market yields by a third or more for top-bracket investors, depending on federal, state, and local rates. This disparity has made cash management a more nuanced decision for yield-seeking investors.
BOXX restructures Treasury bill returns into long-term capital gains taxed at 20 percent, while JAAA provides a 4.95 percent yield from AAA-rated collateralized loan obligations. TFLO’s Treasury floaters offer state and local tax exemptions, adding up to 130 basis points for residents in high-tax states like California and New York.