Michael Kitces

Disqualification notably only occurs with prohibited transactions between the owner/beneficiary. Not entities where the owner is a director, that can only incur a penalty. If the transaction isn’t unwound its a 100% penalty. Try this source or find a similar source that you respect: https://www.kitces.com/blog/self-directed-ira-prohibited-transaction-f… The law itself doesn't make that very clear, thats how its been interpreted and acted upon Again, we are still starting from two different assumptions: I dont consider earning money to be abusive, I dont consider taking risks with your own private equity in a tax deferred account to be abusive. Its great that these accounts are allowed to take risks.

Here's the wonderful Michael Kitces with a great blog post on this idea: https://www.kitces.com/blog/indexing-2-0-how-declining-transaction-cos…

What I find fascinating about this equation is that is in the form of the diffusion (heat) equation. The fundamental solution to the diffusion equation is the Gaussian. So you can think of solving the equation as applying a Gaussian blur to the boundary conditions (given by the terminal price of the option, which turns into an initial condition after a change of variables). The implication is that the further out the option, the blurrier the picture gets, because we're applying more Gaussian blur. One thing that Veritasium glosses over is that BS assumes that the stock price is lognormal distributed, so it follows a geometric brownian process instead of just a regular one. That's why the drift term on a stock price is (r - sigma^2/2) instead of just r in terms of geometric returns. Volatility lowers compounding returns. This is called volatility drag [0]. [0] https://www.kitces.com/blog/volatility-drag-variance-drain-mean-arithm…

Very interesting. The Retirement Industry Trust has a long page: https://ritaus.org/how-to-avoid-prohibited-transactions/ It's also confusing. In their "do's": > Don’t provide more than ministerial services (e.g., decision-making) to your IRA or IRA owned entity (e.g., no “sweat equity”); But in the "Don'ts": "Do consider using an IRA when you, a relative or friend starts a new business." Here's another writeup around that provision by a CFP: https://www.kitces.com/blog/self-directed-ira-prohibited-transaction-f… Key quote: > "However, if someone establishes a self-directed IRA with the aim to invest IRA dollars into a small private held business that they control or own – such that the business entity, and/or their role in the business, can cause it to be a disqualified person – there is a risk that allocating IRA dollars to own that business can cause the IRA itself to become disqualified (and treated as fully distributed as a taxable event). After all, if the IRA puts money into the business, and the business then uses that money to pay a salary to the IRA owner (as an officer of the business), the IRA owner has effectively used the assets of the IRA to enrich themselves." That addresses the self-dealing part of a transaction like this that would be a common-sense red flag. This is all clear as mud; I'm definitely confused enough that I'll be asking my CPA for a recommendation.

I wonder where that page gets its information. Its own quote links to an IRS document that doesn't seem to mention this case. Other places online recommend against it. >There has been no IRS ruling on whether ETFs from two different companies that track the same index are considered substantially identical. https://www.fidelity.com/learning-center/investment-products/etf/tax-r… >Investment advisors and tax planners recommend against selling an index mutual fund from one fund company and buying another index fund tracking the same stock index from another mutual fund company. https://finance.zacks.com/substantially-identical-mutual-funds-5850.ht… >And while arguably swapping from index funds like SPY to IVV are almost certainly a wash sale abuse (or at least, a transaction that should trigger the wash sale rules) https://www.kitces.com/blog/the-wash-sale-problem-when-tax-loss-harves… If you look at Wealthfront's own documentation, when they do tax loss harvesting with ETFs, they find ETFs that track similar but not identical indexes: https://research.wealthfront.com/whitepapers/tax-loss-harvesting/#5-we…

This is false, and is an (unfortunately) common misunderstanding about tax brackets generally. You pay 0% up to $40K, and the 15% starts applying only to income greater than $40K. You absolutely do not pay 15% on the whole thing. You can verify on the IRS worksheet itself line 11 "This amount is taxed at 0%": https://apps.irs.gov/app/vita/content/globalmedia/capital_gain_tax_wor… Here's a blog entry describing: "Notably, because the 0% long-term capital gains rate only applies until crossing the threshold of... taxable income..., the reality is that the opportunity for 0% capital gains is inherently limited – as with other low tax brackets, it only applies until there’s enough income to cross out of that bracket, and any additional income falls in the next higher bracket." https://www.kitces.com/blog/understanding-the-mechanics-of-the-0-long-…

A popular post that is often given to folks who are freaking out about drops in their portfolio: * https://awealthofcommonsense.com/2014/02/worlds-worst-market-timer/ And for those who want to sit on the sidelines, that's usually not a good idea: * https://ofdollarsanddata.com/even-god-couldnt-beat-dollar-cost-averagi… The main folks that do have to worry about their portfolio are those who are about to retire, and those that have just retired, but there are strategies for that (against sequence of return risk): * https://www.kitces.com/blog/managing-portfolio-size-effect-with-bond-t…

This blogpost [1] explains in detail but the gist is: * Standard-deduction next year is $27,700 married ($13,850 single) * Long-term-capital-gains is 0% on first $89,250 ($44,625 single) Thus if you have the tooling to perfectly control your income, e.g. you take $27,700 in treasury bill payments and then sell off enough stock (or take qualified dividends from your corporation's bank account) in the total of $89,250, you'd end up with: * Ordinary Income: $27,700 - standard deduction of $27,700 = $0 taxable income * Long-Term-Capital-Gains of $89,250 = 0% ltcg tax bracket = $116,950 ($58,427 single) of federally tax-free income Then if you're in a no-income-tax state (such as WA, like the Adams brothers), you don't owe any taxes at all. [1] https://www.kitces.com/blog/long-term-capital-gains-bump-zone-higher-m…

The bond tent [0] is an elegant option to deal with sequence risk. It does mean though that you'll need to save a bit more to offset the years your money is out-of-market and not making those 7% returns. [0] https://www.kitces.com/blog/managing-portfolio-size-effect-with-bond-t…

You may wish to look a sequence of return risks and a building a "bond tent" (if this is for retirement): * https://www.kitces.com/blog/managing-portfolio-size-effect-with-bond-t…

“ Notably, it appears that the safe withdrawal rate does not decline further as the time horizon extends beyond 40-45 years (given the limited research available); the 3.5% effectively forms a safe withdrawal rate floor, at least given the (US) data we have available.” https://www.kitces.com/blog/adjusting-safe-withdrawal-rates-to-the-ret…

For your average index fund portfolio, rebalancing has been statistically proven to actually make investor returns lower. The value of rebalancing is in keeping your risk profile constant, not increasing your returns. By selling winners you lose exposure to one of the most persistent risk factors: momentum. Also, the value of the TLH services provided by Roboadvisors have been grossly over-stated and they have since backed off form their initial claims. Read this for more info: https://www.kitces.com/blog/evaluating-the-tax-deferral-and-tax-bracke…

Some research suggests that a 3.5% withdrawal rate will last basically forever. See, e.g. https://www.kitces.com/blog/adjusting-safe-withdrawal-rates-to-the-ret…

Traditional IRA's are more appealing than they seem, even for low income earners. It is entirely possible to pay $0 tax on withdraw from a traditional IRA. https://www.kitces.com/blog/understanding-the-mechanics-of-the-0-long-… The attractiveness of a traditional IRA only increases as your marginal tax rate does.

Bengen's 1994 paper (which kicked off the (so-called) "Four Percent Rule") recommended asset allocations with no less than 50% in equities, but no more 75% for retirement savings when you have retired: * PDF: https://web.archive.org/web/20120417135441/http://www.retailinvestor.o… * https://en.wikipedia.org/wiki/William_Bengen 60/40 would be in the middle of that. More recent research shows that the range is still valid with thirty years more data: * https://en.wikipedia.org/wiki/Retirement_spend-down#Withdrawal_rate You may wish to be a bit more bond-heavy a little before retirement and for the first few years to counter sequence of returns risk (see Kitces' "bond tent" concept): * https://www.kitces.com/blog/managing-portfolio-size-effect-with-bond-t… (The 4% Rule should not necessarily be taken literally, but is a good mental rule of thumb and starting point: best to hire a (fee-only) advisor to run the numbers for an actual plan.)

I'll respond in more detail later but here is a paper that examines it: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2324930: "Accordingly, as the results support, for those looking to maximize their level of sustainable retirement income, and/or to reduce the potential magnitude of any shortfalls in adverse scenarios, portfolios that start off in the vicinity of 20% to 40% in equities and rise to the level of 60% to 80% in equities generally perform better than static rebalanced portfolios or declining equity glidepaths. Though as the results also reveal, in particular scenarios where the equity risk premium is depressed, the optimal glidepath includes less equity, and in scenarios where the goal is to withdraw at a level that stresses the portfolio and its expected growth rate, higher overall levels of equity are necessary; with such high-risk goals, having a relatively high-risk portfolio, with the danger that entails, is still the optimal solution (and for clients who cannot tolerate that level of risk, the ideal solution is to choose not a less risky portfolio, but a less risky and aggressive goal). Nonetheless, for everyone else looking to maximize a sustainable income level, or determine the amount of assets to support a (reasonable) target income level, rising equity glidepaths appear to both maximize the likelihood of success and sustainable income and reduce the magnitude of shortfalls when they occur." There is a a lot of discussion of this here:…

Yes, what you want to look into if you have existing traditional-IRA dollars is the "Pro-Rata Rule". See: https://www.kitces.com/blog/the-impact-of-the-ira-aggregation-rule-on-… Backdoor Roth: Contribute $6,000 in after-tax dollars to IRA, Immediately convert IRA --> Roth IRA. File Form 8606. Mega Backdoor Roth: Contribute a total of ($56,00 - ($19,500 + Employer Match)) as After Tax contributions to a 401K. Convert those funds to a Roth 401k. Another detail, you may see discussion about avoiding the "Step Doctrine" for backdoor Roth contributions. This is no longer required as the IRS has blessed Back Door contributions, after an obscure footnote in a 2018 congressional report. - Footnote Commentary: https://www.forbes.com/sites/ashleaebeling/2018/01/22/congress-blesses… - IRS Explicitly Acknowledges: https://www.napa-net.org/news-info/daily-news/case-week-de-villainizin… - More: https://www.fa-mag.com/news/irs-finally-says-back-door-roth-s-are-ok-3… - https://www.physicianonfire.com/backdoor/ - https://www.biglawinvestor.com/backdoor-roth-ira-step-by-step-guide/

well.. it depends. You didn't really specify goals, which is the most important thing. In many cases you are correct. Somewhat related see Vanguard's research "Dollar-cost averaging just means taking risk later" [1] which finds lump sum investing is better in ~2/3 of the cases they considered. They had a specific time horizon. Individual's have unique situations and goals and should consider those instead of just dumping everything into an s&p index fund asap. Maybe an individual is more sensitive to sequence risk at different points in his life? There is an entire profession (financial planners) which allows you to outsource these decisions to if you want. Same for the spending part of retirement (hint: most common advice (bond/stock mix) is exactly the opposite of what it should be e.g. "Rising Equity Glidepath" [2]) [1] https://pressroom.vanguard.com/nonindexed/7.23.2012_Dollar-cost_Averag… [2] https://www.kitces.com/blog/should-equity-exposure-decrease-in-retirem…

The maximum yearly gain is $3000 * your marginal income tax rate. So, if your marginal tax rate is 33%, it would be $1000/year. This is because you can write off a maximum of $3000 of losses on your taxes every year. The information you may find about tax-loss harvesting gains on the internet is usually incorrect if it comes from people trying to sell you something. For example, Betterment / Wealthfront claim that it adds an extra 1% of returns (only if you have a $100,000 portfolio and your marginal tax rate is 33%, which are the assumptions they use to get that number). On the other hand, human investment advisors are generating FUD about tax-loss harvesting[1][2], because they want to discourage people from requesting that service. [1] http://www.cnbc.com/2014/10/24/weighing-the-pros-and-cons-of-annual-ta… [2] https://www.kitces.com/blog/is-capital-loss-harvesting-overvalued/