Plain-English definitions of the financial, tax, and estate planning terms that come up most often for the households we serve. Written to be useful, not to impress.
A fiduciary financial advisor is legally required to act in your best interest at all times, placing your financial well-being ahead of their own. Fiduciaries must avoid or disclose conflicts of interest, and they cannot recommend a product simply because it pays them more.
Read more →A fee-only financial advisor is paid only by their clients — never through commissions, product sales, or referral arrangements. Compensation is fully disclosed, most often as a percentage of the assets the advisor manages, which removes the incentive to sell products for a commission.
Read more →A Roth conversion moves money from a pre-tax retirement account, such as a traditional IRA or 401(k), into a Roth IRA. You pay income tax on the converted amount in the year of the conversion, and in exchange the money grows tax-free and is withdrawn tax-free in retirement.
Read more →IRMAA — the Income-Related Monthly Adjustment Amount — is a surcharge added to Medicare Part B and Part D premiums for beneficiaries whose income exceeds certain thresholds. It is based on your modified adjusted gross income from two years earlier, so a single high-income year can raise your Medicare premiums later.
Read more →A required minimum distribution is the minimum amount you must withdraw each year from most pre-tax retirement accounts once you reach a certain age (currently 73). The withdrawal is taxed as ordinary income, and failing to take it on time can trigger a significant IRS penalty.
Read more →Tax-loss harvesting is the practice of selling an investment that has lost value to realize a capital loss, then using that loss to offset capital gains — and a limited amount of ordinary income — on your tax return. The proceeds are typically reinvested to keep your portfolio’s strategy intact.
Read more →Asset location is the strategy of placing each investment in the type of account where it is taxed most favorably — coordinating across taxable, tax-deferred, and Roth accounts. It is different from asset allocation, which is about what you own; asset location is about where you hold it.
Read more →A qualified charitable distribution is a direct transfer from an IRA to a qualified charity, available to account owners age 70½ and older. The amount given counts toward your required minimum distribution but is excluded from your taxable income, which can be more tax-efficient than donating cash.
Read more →A donor-advised fund is a charitable giving account. You contribute cash or appreciated assets, take an immediate tax deduction in the year of the gift, and then recommend grants to charities over time. The assets can be invested and grow tax-free while they wait to be granted.
Read more →A concentrated stock position is when a large share of your net worth is tied up in a single stock — often from company equity compensation, a long-held investment, or an inheritance. The concentration creates outsized risk, because your financial security depends heavily on one company’s performance.
Read more →A step-up in basis resets the cost basis of an inherited asset to its fair market value on the date of the original owner’s death. This can eliminate capital-gains tax on all the appreciation that occurred during the owner’s lifetime if the heir sells the asset shortly after inheriting it.
Read more →The net investment income tax is an additional 3.8% tax on investment income — such as interest, dividends, capital gains, and rental income — for individuals whose modified adjusted gross income exceeds certain thresholds. It applies on top of ordinary income and capital-gains taxes.
Read more →These concepts only matter when they're coordinated. That's the work we do.