Americans Drain Money Funds To Pay Income Tax Bills

On tax day, hundreds of thousands of Americans dug into their money market mutual fund accounts for cash to help cover the tab they owed the federal government.

It’s an annual occurrence.

An estimated $30 billion was pulled from money market funds last year in the three-week period after the April 15 tax deadline, according to IBC’s Money Fund Report. The withdrawals equaled about 3.6 percent of overall money fund assets.

Industry executives expect that outflows from money funds may be even bigger this year because of large capital gains taxes tied to last year’s stock market rally.

U.S. money fund assets are approaching the $1 trillion mark, reaching a record $985 billion in the week ended April 9, according to the Investment Company Institute.

It’s unlikely assets will surpass $1 trillion until mid-May or early June at the soonest, said Peter Crane, managing editor of IBC’s Money Fund Report.

“We expect that as much as $50 billion will be pulled from money funds in the next three weeks to cover tax-related bills,” Crane said. “That would represent about 5 percent of money fund assets.”

It takes the Internal Revenue Service several weeks to clear all the checks it receives this time of year, so there’s usually a delay in measuring how money fund assets are affected by the tax crunch, Crane said.