Blog

Thoughts and musings from my desk to you.

Protecting Gains? It’s Complicated.

Protecting Gains? It’s Complicated.

Tax Strategy, Unrealized Gain

Clients generally understand how our low-turnover methodology equates to better returns over time. For example, with enough tax deferral, an 8% return can be augmented to a 10% return (in dollars). But that’s not all. Preserved gains that remain untaxed until death are tax-free in many circumstances. This can make low-turnover methodologies even more compelling. Despite the power of these factors, protecting gains and principal is still the first order of business at Segment.

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Roth Conversions

Roth Conversions

IRAs, Tax Strategy

Roth conversions remain one of the most underutilized tax planning strategies around.

Imagine the limited benefits of continued tax deferral for a 90-year-old retiree with a $500,000 IRA and an income of $100,000 a year. That income is comprised of pension distributions, IRA required minimum distributions (RMD), and some dividend income. Let’s say she has two grown children in their 60s, each earning $600,000 a year in a 41% tax bracket. Since Mom’s tax bracket peaks at 24% (up to around $170,000 worth of annual income), it would make perfect sense for her to do annual $70,000 Roth conversions, whittling down her $500,000 IRA and avoiding that next bracket of 32% above $170,000 in gross income.

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Estate Taxes & IRAs – Collision Course

Estate Taxes & IRAs – Collision Course

IRAs, Tax Strategy

There are very few tax issues more complicated than the intersection of estate taxes, income taxes, and IRAs. Very few couples exceed the $24million exemption amount to begin with, and even fewer get this part of their planning correct. If not navigated well, this confluence of factors can conspire to cause 80% of an IRA or 401k to be lost to taxes. There are solutions, including going back three years to amend returns if this causes an aha moment.

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Frankenstein Tax Policy

Frankenstein Tax Policy

Tax Strategy

Mr. Biden’s new tax policy has proposed yet another angle to get more tax revenue from the “millionaires and billionaires.” This time he’s circling back to see if he can get a tax on unrealized (unsold) taxpayers’ gains after all. The new twist is that this tax policy is limited to those folks with more than $100 million in net worth. Under current law, only assets that are sold for a profit are taxable, and they are never taxed if held to death. Mr. Biden claims this is an “unfair” loophole incentivizing taxpayers to avoid sales.

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Tax Loophole

Tax Loophole

Step-up in Basis Rule, Tax Strategy

There’s much wisdom in exercising caution when stirring up things long undisturbed. Politicians often run amok in efforts to garner “points” with their constituents. In this case, Mr. Biden ought to have let sleeping dogs lie. His recent attempt to discard the Step-up in Basis Rule, a popular tax loophole, was met with understandable resistance, and he has since relented.

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Tax Rule Changes: Build Back Better Act

Tax Rule Changes: Build Back Better Act

economy, Tax Strategy

The language surrounding the Build Back Better Act suggests that it’s time for the rich to “pay their fair share.” But it is important to remember that 61% of all Americans pay no taxes. This vulnerability was addressed over 190 years ago, when Alexis de Tocqueville warned that the eventuality of non-taxpayers voting for the taxation of others would ultimately be America’s undoing. But don’t lose heart. We have been on such a brink before, and we voted in low-tax Ronald Reagan as a result.

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Death and Taxes

Death and Taxes

Step-up in Basis Rule, Tax Strategy

Everybody has heard the old saying that nothing is certain in life except death and taxes. But not everyone knows how death and taxes are inextricably linked.

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Gil's Musings

Learn about the world of investing from a 38-year industry veteran. Gil's Musings are inspired by Gil's thoughts on timely finance topics, stock market trends and the psychology behind smart investments.

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