[DespotInExile]

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Assuming a 33% federal rate and a 9.3% CA tax rate you have an effective tax rate of 42.3%.

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Almost correct. The state taxes paid are deductible against your federal returns (again, subject to AMT limits), so at the 33% federal bracket, and 9.3% California bracket, the effective rate on 1099 interest income would be 39.1%. So the pre-tax equivalent rate of investing in the Vanguard California tax-free MMF would be 3.54% / [1-.39138] = 5.82%.

Again, 5.82% is likely to be better than you can get at any online savings account.