Just as a FYI, I put on a box spread this week. I got a 20 basis point premium over the corresponding treasury. The preferential tax treatment will net me another 30 basis points. I do not have state taxes. I think it’s an option worth considering for folks in a high federal bracket who do not have state taxes. You do need to be knowledgeable and comfortable trading options, however.This ETF uses box spreads. I don't know about the ETF, but box spreads themselves are taxed as 60% long term cap gains and 40% short term cap gains. I used box spreads for some time a few years ago, in both taxable and IRA at Fido, and was getting a yield spread over Treasuries of about 40 basis points before tax.Check out BOXX ( ETF)- I learned about it on the Bogleheads podcast, but in short ( and I dont pretend to understand how it works)- it is a derivative ETF that mimics Treasury yield BUT can be held as a long term ETF for tax purposes.
The tax advantage turns out not to be that great if you have a high state income tax rate, which I do at 9.3%, since there's no state income tax on Treasuries, but there is on box spreads.
I haven't looked at the spreads lately, but back when I was using them, it got to the point where the after-tax spreads shrunk to the point where it wasn't worth the effort; it takes some work to set up the box spread and then get it filled--usually I had to keep changing my price every few minutes until I got it filled, and sometimes it could take quite a few price changes. Sometimes I could get the trade filled at my minimum acceptable price.
With an ER of almost 0.2%, the ETF would eat up almost half of the spread over Treasuries I was getting. Maybe for folks with high fed and low state marginal tax rates it could still be attractive.
Statistics: Posted by wingman4uz — Thu Jun 27, 2024 10:44 am