The cash in your savings accounts or CDs is almost certainly earning less interest and receiving worse tax treatment than a number of alternatives. Magnolia helps clients earn more and keep more with strategies designed to improve income, tax treatment, or both. We can do the same for you. Discover how much a more efficient cash strategy can mean for your bottom line by entering your current bank interest rate rate below.
After-Tax Income Comparison
What your cash could be earning
Choose an amount and select your tax rates and what you're currently earning. All figures are annual and illustrative only.
T-bill and SOFR rates sourced live from FRED where available. See footnotes ¹–⁴ below.
None of these strategies require you to lock up your capital. Each can be held in an investment account and, under normal market conditions, can be converted to cash and available to be transferred to a linked checking account within approximately one business day.
Here is a closer look at how these strategies work and who they're best for:
Option 1 · Treasury Bills
Government-backed with a built-in state tax advantage
T-bill interest is exempt from state and local income taxes. Rates are typically competitive with or better than savings accounts, backed by the full faith and credit of the U.S. government.
Best for: high-tax-state residents seeking government-backed yield
Option 2 · Options-Based Cash
Pay taxes later and at a potentially lower rate
This strategy uses exchange-traded options to target a return broadly in line with prevailing short-term Treasury yields. Returns accrue inside the position rather than paying out as current income, and if held for more than a year, any gain may be eligible to be taxed at long-term capital gains rates, depending on your circumstances.
Best for: high earners holding cash for 1 year or more
Option 3 · AAA-Rated CLO Notes
Higher income through structured credit
Invests in the most senior, first-paid slice of diversified corporate loan pools. This approach offers exposure to higher interest income through AAA-rated CLO securities backed by a very large pool of corporate loans. Interest is fully taxable as ordinary income.
Best for: maximizing current income and comfortable with AAA-rated CLO notes
Combines exposure to AAA-rated CLO securities with a structure that defers current income and may allow gains to be taxed at long-term capital gains rates, depending on your circumstances. A modest amount of leverage increases the overall yield of the strategy.
Best for: high earners seeking maximum after-tax returns
Your cash can do better. We can help.
¹ Treasury Bills: T-bill rate sourced live from the Federal Reserve Bank of St. Louis (FRED), 3-Month Treasury Constant Maturity series (DGS3MO). If live data is unavailable, the calculator falls back to the greater of 2.50% or +0.50% above the entered savings rate. T-bill interest is exempt from state and local income taxes; federal ordinary income tax applies, plus 3.8% Net Investment Income Tax (NIIT) at the 35% and 37% brackets.
² Options-Based Cash: Uses exchange-traded options to target a return broadly in line with prevailing short-term Treasury yields (same pre-tax rate assumption as in footnote ¹); the primary difference in this illustration is the tax structure. Returns accrue inside the position with no current income distributions; any gain may be eligible to be taxed at long-term capital gains rates if held for more than 12 months. LTCG rates applied: 23.8% (20% + 3.8% NIIT) at the 37% bracket; 18.8% (15% + 3.8% NIIT) at 35%; 15% at 32% and 24%. State tax applies on sale. LTCG treatment is not guaranteed; individual tax circumstances vary. The tax treatment described is subject to change by IRS guidance, legislation, or judicial interpretation.
³ AAA-Rated CLO Notes: Yield shown at SOFR + 1.50%, reflecting historical average spreads. SOFR sourced live from FRED (SOFR series); if live data is unavailable, estimated at 0.20% below the T-bill rate. Actual spreads vary with market conditions. AAA CLO tranches are backed by a diversified pool of corporate loans and are not government-guaranteed. Interest is taxable as ordinary income, plus 3.8% NIIT at the 35% and 37% brackets.
⁴ Tax-Deferred AAA-Rated CLO Notes (Levered): One turn of leverage applied: 2× total position, borrowing equal to equity at SOFR + 1.00%. Net carry of 0.50% per turn (CLO spread minus borrowing spread) is added to the unlevered CLO yield. Yield shown net of estimated borrowing cost. Intended to achieve the same general tax-deferral and potential long-term capital gains treatment described in footnote ², but actual tax treatment depends on individual circumstances. Leverage amplifies both gains and losses and is not appropriate for all clients.
This material is provided for educational and informational purposes only and does not constitute investment advice, tax advice, or a recommendation to buy or sell any security. It is intended for general audiences and does not take into account the specific investment objectives, financial situation, or needs of any individual reader.
Yields and rates referenced are illustrative and subject to change without notice. Actual results will vary based on specific investment vehicles, market conditions, and individual circumstances. T-bill and SOFR rates displayed in the calculator are sourced live from the Federal Reserve Bank of St. Louis (FRED) and reflect the most recently available published data; if live data cannot be retrieved, the calculator falls back to derived estimates (T-bill at the greater of 2.50% or +0.50% above the entered savings rate; SOFR at 0.20% below the T-bill rate). T-bill interest is generally exempt from state and local income taxes but is subject to federal income tax. AAA CLO yield based on a historical average spread of SOFR + 1.50%; actual spreads vary and are not guaranteed. Implied borrowing cost for the levered strategy is SOFR + 1.00%.
Tax treatment of all strategies described depends on individual circumstances and may differ from the general descriptions provided here. The 3.8% Net Investment Income Tax (NIIT) is applied to ordinary investment income and to capital gains for taxpayers at the 35% and 37% federal brackets, reflecting the approximate NIIT threshold of $200,000 modified AGI (single) / $250,000 (married filing jointly); taxpayers near this threshold should consult a qualified tax advisor. LTCG rates applied in this model: 23.8% federal at the 37% bracket, 18.8% at 35%, 15% at 32% and 24%. The tax-deferred strategies discussed rely on long-term capital gains treatment, which requires a holding period exceeding 12 months and is not guaranteed. Tax laws, IRS guidance, and judicial interpretations are subject to change at any time and may affect the tax treatment of any strategy described here. Nothing in this material should be construed as tax advice. Please consult a qualified tax advisor regarding your specific situation.
AAA-rated CLO tranches are corporate obligations, not government-guaranteed. While defaults at the AAA tier have been historically low, past performance is not indicative of future results. The use of leverage in any investment strategy increases the potential for both gains and losses and may not be appropriate for all investors.
Magnolia Private Wealth, LLC · magnoliapw.com
Disclaimer: The opinions voiced and information provided in this document is for informational and educational purposes only. It should not be considered investment, financial, or legal advice. Nothing herein constitutes a recommendation to buy, sell, or hold any security or financial instrument. Magnolia Private Wealth does not provide tax, legal or accounting advice. Investing involves risk, including the potential loss of principal. You should consult with a qualified financial advisor, tax professional, or other appropriate professional before making any financial decisions. The author and publisher assume no liability for any losses or damages resulting from the use of this information.
