For better or worse I've had VMFXX as my brokerage money market (settlement account) at Vanguard for a while. I now live in a taxable state, and, I'll soon be getting a large distribution from an estate trust (6 figures). I know that VUSXX can't be used as a settlement account so I will keep my VMFXX in my brokerage account. But thought I should add VUSXX to that brokerage account to hold (at least some of) the distribution money, because from what I understand it won't incur state tax. Does this make sense?
Yes, keep as much as you can in VUSXX for the state tax benefit. Be aware that it will take an extra day to sell VUSXX and have it go to settlement (VMFXX) to transfer it out.
Thank you
Yes, this is exactly the fund I'm using as well for my home sale proceeds while I determine what the next step is.
Good to have that validation! I like knowing the yield is pretty decent for however much I end up keeping in it, too.
VUSXX usually qualifies for over 90% state tax exemption, which VMFXX rarely touches. For a six-figure sum, that tax delta is significant enough to justify the manual shuffling. You'll just need to remember that it isn't your settlement fund. It’s a common strategy for high-tax states—simple and effective.