VCAIX vs. TBills?

[fund4tomorrow]

My wife and I currently invest in both VCAIX and 30 day TBills (via Fidelity, auto-rolling over every month) along with other tax efficient Vanguard funds, but I have been wanting to better understand the tax efficiency of them given our current tax bracket and which really makes the most sense.  Unfortunately, both of us do not have the time to put into buying and managing the munis directly, which is why we buy the VCAIX fund.  We recently started adding monthly TBill purchases via Fidelity. 

As of 2018, our Federal effective tax rate is 22.4% for 2018, down from 25.5% for 2017.
For 2018, our California state effective tax rate is 7.73%, down from 7.83% in 2017. 

We would be very grateful if someone could explain the tax benefit for us as California residents and which makes the most sense as we have sometimes received mixed recommendations, or perhaps if something else might be a better option.

Thank you and Happy Financial Independence to All

[MustacheAndaHalf]

Right now 1 month Treasury bills yield 2.23%, and you pay Federal (but not CA) tax on that yield.
https://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yield

VCAIX has (an unusual) 1-year performance of 6.09%, a 10 year performance of 4.54%, and a current SEC yield of 1.57%.
https://investor.vanguard.com/mutual-funds/profile/performance/vcaix

2.23 x (1 - .224) = 1.73%

So right now, U.S. treasuries yield more than VCAIX, but the historical data (1yr, 2yr, 5yr, 10yr) all favor VCAIX.

[fund4tomorrow]

Hey Mustache and a half,

I wanted to thank you for replying to my question about VCAIX vs Tbills.

I also wanted to know how you had come up with the formula that you had provided me with your answer.  I'm looking to put this into an excel document as a function or sheets to pull in some information and make these calculations for me. 

Can you please explain to me how and where the numbers in your formula came from and what they represent? 

I noticed a big difference between the 30 day SEC yield and the 1, 5 and 10 you had pointed out.  Does this mean that sometimes the 30 day SEC is much higher? 

Thank you again

[MustacheAndaHalf]

Treasuries are not taxed by states (like CA), but they are taxed by the Federal government - the IRS.
California tax-exempt bonds are not taxed by CA nor by the IRS (they are municipal bonds).

So you owe Federal income tax on the T-bill income, but nothing else get taxed.  You said you had a 22.4% tax rate.  So when you get t-bill income, 22.4% of that is gone.  So I used (1.00 - 0.224) to represent what you have left after being taxed at a 22.4% tax rate.

1.00 - 0.224 = 0.776%, or 77.6% left after taxes.

So the t-bill yield needs to be reduced to 77.6% of it's original value - to reflect what you get to keep after taxes.