Best Treasury Money Market Funds 2026 — State-Tax-Exempt Cash
Quick take: If you live in California, New York, New Jersey, Massachusetts, Oregon, or any other high-state-tax state, a Treasury-only money market fund is almost always the highest after-tax MMF choice your brokerage offers. The state-tax exemption on direct U.S. Treasury obligations is worth 30-50 bps of effective after-tax yield for a 9-13% state-bracket resident — more than the typical spread between the top headline-yielding MMFs.
Top Treasury-only money market funds 2026
| Rank | Fund | 7-Day Yield | Expense | Min | Why it's on the list |
|---|---|---|---|---|---|
| 1 | Vanguard Treasury Money Market (VUSXX) | 4.10% | 0.09% | $3,000 | Lowest expense in the category; substantial state-tax exemption. |
| 2 | Fidelity Treasury Only (FDLXX) | 4.05% | 0.42% | $0 | Cleanest exemption disclosure; $0 minimum; inside Fidelity. |
| 3 | Schwab U.S. Treasury MMF (SNSXX) | 4.02% | 0.34% | $0 | Best Schwab MMF for high-tax-state residents. |
| 4 | BlackRock Liquidity Treasury Trust | 4.08% | 0.20% | Varies | Institutional-grade Treasury fund with retail share classes. |
| 5 | Federated Hermes U.S. Treasury Cash Reserves | 4.04% | 0.32% | $1,500 | Long-standing Treasury MMF from the category pioneer. |
Why Treasury MMFs win on after-tax yield in high-tax states
Under federal law, interest on direct U.S. Treasury obligations is exempt from state and local income tax. Treasury-only MMFs hold direct T-bills and short T-notes — typically 95-100% of dividends qualify for the state-tax exemption.
For a Californian in the 9.3% state bracket holding $250,000 in a Treasury MMF at 4.10% vs. a government MMF (with ~50% government-interest percentage) at 4.20%:
| Calculation | Treasury MMF (VUSXX) | Government MMF (VMFXX) |
|---|---|---|
| Headline yield | 4.10% | 4.20% |
| Annual income on $250K | $10,250 | $10,500 |
| % qualifying for state-tax exemption | ~98% | ~55% |
| State-taxable portion of income | $205 | $4,725 |
| CA state tax @ 9.3% | $19 | $439 |
| After-state-tax income | $10,231 | $10,061 |
| After-state-tax effective yield | 4.09% | 4.02% |
The Treasury MMF wins by 7 bps on this comparison. In years when the government MMF qualifies for less of the exemption (because it leans more on repo), the spread widens to 15-25 bps in favor of the Treasury fund.
When a Treasury MMF is NOT the right answer
- No-income-tax states (TX, FL, NV, WA, TN, SD, WY, AK, NH): the state-tax exemption is worth nothing. Pick the highest headline yield in your brokerage.
- Inside an IRA or 401(k): dividends inside a tax-advantaged account aren't currently taxed regardless, so the exemption is irrelevant. Pick the highest headline yield.
- 3+ year money: a Treasury MMF is still the wrong vehicle. The right vehicle for 3+ year money is a locked MYGA or a Treasury ladder. See MMF vs MYGA →
State-by-state exemption notes
- CA, MA, NY, NJ, OR: strict enforcement — the exemption is essentially automatic for direct Treasury interest. Mixed-collateral funds qualify only on the Treasury portion.
- IL, IA, MN: require the fund to hold a minimum percentage (typically 50%) in U.S. government obligations for any of the dividends to qualify for the state-tax exemption. Read the fund's year-end disclosure carefully.
- CT, NH (interest tax): exemption applies the same way as full-income-tax states.
More Money Market Fund research
- Best Money Market Funds 2026 (ranked)
- MMF vs MYGA — when each wins
- MMF vs HYSA — yield spread and risk
- MMF vs CD — liquidity vs lock
- Breaking the buck — 1994 & 2008 cases
- How MMF yields track the Fed funds rate
- High-Yield Savings reviews
- Best MYGA rates 2026
FAQ
Q: How do I know what % of MMF dividends qualified for the state-tax exemption?
A: Every fund publishes a year-end document (often called "U.S. government obligations interest" or similar) showing the percentage of dividends attributable to direct U.S. Treasury obligations. Apply that percentage to your dividend income, exempt that portion from state tax. Your CPA or tax software will handle this automatically if you supply the year-end fund disclosure.
Q: Why are Treasury MMF yields lower than government MMF yields?
A: Treasury-only funds hold a slightly narrower opportunity set (no agency paper, no repo). Headline yield is typically 5-15 bps lower than a similar government MMF. The state-tax exemption usually more than makes up the difference for high-state-tax residents.
Q: Are Treasury MMFs safer than government MMFs?
A: Marginally, yes — direct Treasury collateral has zero credit risk and zero counterparty risk (vs. repo, which depends on the counterparty's ability to deliver the Treasury collateral if needed). For practical purposes, both are the safest MMF tiers available.
About Hans Goldstein: Independent retirement income specialist. CA Life License #4163961. NPN #20602398. Reviews 30+ carriers and the full menu of cash alternatives. Phone: 213-414-2808. Email: hans@goldsteinco.net.
Hans is independently licensed as an insurance producer; he does not sell money market funds or other securities. These reviews are based on publicly available fund prospectuses, fact sheets, SEC filings, and SEC-yield reporting requirements.
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Disclosure
This review reflects publicly available fund prospectuses, fact sheets, and approximate 7-day SEC yields as of the date stated above. Money market fund yields change daily and reset roughly in line with the federal funds rate; always confirm current yield, expense ratio, holdings, and weighted average maturity against the most recent fund disclosure document before committing capital. Money market funds are not FDIC-insured. Government and Treasury money market funds historically maintain a stable $1.00 NAV but are not guaranteed to do so — see "breaking the buck" history. Prime money market funds may impose liquidity fees or redemption gates during market stress. This article is general information for educational purposes; it is not a personalized recommendation, solicitation, or offer of any specific product. Hans Goldstein is an independent licensed insurance producer (NPN 20602398) and does not sell securities or money market funds; comparisons to multi-year guaranteed annuities (MYGAs) are provided for informational context only. No compensation has been received from any fund company in connection with the publication of this review. Always read the actual fund prospectus and consult a licensed advisor before investing. Past yield does not predict future yield. State income tax treatment of U.S. Treasury obligations varies and is subject to change. Tax discussion reflects federal and California law as of 2026 and is subject to change.