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Intro

It’s common for people to park their cash in a high-yield savings account (HYSA).

But Treasury bills are another option that many people don’t consider.

In fact, for some scenarios, Treasury bills can actually be a smart way to save money on taxes.

Quick Treasury Bill Rundown

Treasury bills (T-Bills) are short-term instruments issued and backed by the U.S. Treasury. They are available in terms of 4, 8, 13, 17, 26, and 52 weeks.

T-Bills are issued at a discount and reach par value (full value) at maturity. The difference between the discount and the par value is the interest you’ve earned.

Currently, the 4 week Treasury bills yield ~4.22% as of March 16, 2025

So, why should you care?

The interest income from a Treasury bill is exempt from state and local income tax.

For example, say you live in a state that has a flat 5% state income tax and a 2% local tax, and you have $50,000 that you keep in a HYSA for your emergency savings that received ~$2,000 from interest. 

For this simplified example, you might pay ~$140 ($2000 * 0.07) of state and local taxes if you were using a HYSA (depending on your income & state).

What if you held Treasury bills instead?

You will pay $0 in state and local taxes if you are investing in Treasury bills.

There is no difference in taxation of HYSA and Treasury bills from the federal tax side of things.

Note: the example above assumes the Treasury bill and HYSA yields are the same throughout the year. However, Treasury bills can sometimes have higher yields than many popular HYSAs.

For example, popular HYSA APYs:

(as of March 12, 2025)

• BMO Alto: 3.70%

• PNC: 3.95%

• Ally: 3.70%

• Capital One: 3.70%

• SoFi: 3.80%

While Treasury bills are at ~4.22% as of March 16, 2025.

Using Treasury bills could be especially beneficial for people in high-tax states like CA, NY, NJ and others.

If you live in a state with no income tax, like Florida or Tennessee, it might not make a difference to use T-Bills from the tax standpoint, beyond comparing the yields.

What about liquidity?

It’s an important point. You can generally withdraw from your HYSA bank at any time with ease.

However, it might be a little more difficult to do so with Treasury bills, which are offered from brokers or directly from the Fed.

Treasury bills can be sold before their maturity on the secondary market, but you might not receive the full expected value if you sell them before they mature.

Treasury Bill Ladder

Some people utilize the concept of a “Treasury Bill Ladder.” It’s a strategy where a person spreads out their money across multiple U.S. Treasury bills durations.

For example, the money would be divided into four different piles. Using our previous example of $50,000, it could be split into four amounts of $12,500.

Then, a person could get a $12,500 4-week Treasury bill (at a discount). After the first week passes, the person buys another 4-week Treasury bill for $12,500 and repeats the process two more times.

After the initial week, they would receive the par value of the initial investment, and every week, Treasury bills mature. Some people also like the idea of 3, 6, 9, and 12-month Treasury bills with a similar concept.

The strategy could help with liquidity and remove the need to sell before maturity.

A simple visual to help you with the concept:

How can you get them?

T-bills can be purchased directly from the U.S. Treasury via TreasuryDirect.gov, or through a brokerage account (Fidelity/Schwab). 

TreasuryDirect platform is less flexible for selling before maturity, so many people prefer buying them through a broker.

Fidelity also offers an auto roll feature that could be extremely practical..

Overall, using Treasury bills could be an interesting way to potentially save money on state taxes.

What’s Happening at Carry Lab?

Here’s what you can expect in the coming weeks

See the full list of events here. ⏰

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If you want more resources on building wealth as a solopreneur/entrepreneur, check these out:

• The Solo 401k handbook

• The Roth IRA handbook

• The Self-Directed IRA handbook

• The Guide to Paying Less in Taxes

• What is a Solo 401k?

• How to Open a Solo 401k