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pay income tax on the converted amount in the year of the conversion, and in exchange the money grows tax-free and is withdrawn tax-free in retirement.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 modified adjusted gross income (MAGI) exceeds certain thresholds set annually by the Social Security Administration and the Centers for Medicare & Medicaid Services (CMS). It is based on income from two years earlier, so a high-income year today can raise Medicare premiums later.
Read more →A required minimum distribution (RMD) is the minimum amount the Internal Revenue Service (IRS) requires you to withdraw each year from most pre-tax retirement accounts, including traditional individual retirement accounts (IRAs), 401(k)s, SEP IRAs, SIMPLE IRAs, and 403(b)s, once you reach the RMD age set by the SECURE 2.0 Act. The withdrawal is taxed as ordinary income, and missing one can trigger a substantial 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 (QCD) is a direct transfer from an individual retirement account (IRA) to a qualified 501(c)(3) charity, available to IRA owners age 70½ and older. The amount given can count toward your required minimum distribution (RMD) for the year but is excluded from your taxable income entirely, rather than claimed as a deduction.
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, under Internal Revenue Code Section 1014, resets the cost basis of an inherited asset to its fair market value on the date of the original owner's death (or an alternate valuation date six months later, if elected). This can eliminate capital-gains tax on the appreciation that built up during the owner's lifetime if the heir sells the asset near that value.
Read more →The net investment income tax (NIIT) is an additional 3.8% tax under Internal Revenue Code Section 1411 on net investment income, including interest, dividends, capital gains, rental income, and passive business income, for individuals whose modified adjusted gross income (MAGI) exceeds certain thresholds. It applies on top of regular income tax, not in place of it.
Read more →These concepts only matter when they're coordinated. That's the work we do.