After TaxTax Playbook

Tax Playbook · Investment tax wins

The 0.2% that costs Californians thousands

Treasury income is usually free from state tax. But California, New York, and Connecticut only let a fund pass that break to you if 50% or more of its assets are in US government bonds, checked every quarter. The Bloomberg Aggregate sits at about 49.8% — 0.2% short — so on a $1M fund, a Californian pays about $2,825 a year in state tax on income that should have been free. The fix: split it up — hold Treasuries in their own fund and the rest in a separate credit fund.

Good for: Taxable-account investors in California, New York, or Connecticut who hold bond index funds.

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Educational summary, not tax advice. Limits and rules change — confirm current law with your tax adviser.