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Risk and Taxes

ArticleAdam M. Grossman  |  Aug 8, 2026

AFTER YEARS OF heady gains in the stock market, many investors are facing the same question: To manage risk, they’d like to cut back on one or more of their holdings. But because of the potentially costly tax bill that might result, they aren’t sure exactly how to do that. How can you square this circle? One easy option would be to donate appreciated assets to charity. But that would make sense only if it aligns with your charitable goals and, of course, if you don’t need those funds for other uses. How else could you strike a balance between managing risk and limiting taxes? Here’s how I would answer this question. Step 1. I’d start by estimating the potential risk level among your holdings. While there’s no single litmus test, you could ask the following questions. First, how large a portion of your assets does any single holding represent? As a rule of thumb, I’d focus first on individual stocks that top 5%. Why 5%? My operating assumption is that any individual stock could experience a 50% decline during a crisis. So if a holding is limited to 5%, then a 50% drop would result in an overall portfolio impact of just 2.5%. I see that as very manageable. To be sure, stocks can certainly decline by more than 50%, but I view this as a reasonable figure for risk management. While I worry most about the risk posed by single stocks, it’s also important to examine the overall composition of your portfolio. That’s because, counterintuitively, a portfolio of 30 stocks could end up being riskier than a group of just 10. Harry Markowitz, the father of Modern Portfolio Theory, explained why. In his initial work back in the 1950s, Markowitz used railroad company stocks to explain the concept of diversification. There’s nothing inherently wrong with railroad stocks, Markowitz explained. But if a portfolio consists of only railroad stocks, then that would be a problem—because companies in the same industry are often impacted by the same economic factors. In other words, a portfolio consisting of a large number of holdings might only appear diversified, so it’s important to look under the hood. Another risk factor to consider: Do you work for a public company and own the company’s stock? If so, that would be a reason to consider diversifying more quickly (within the permitted time windows). What if you own only mutual funds or ETFs? Diversified funds tend to be less risky than individual stocks, but that’s not always the case. The fund industry launches as many as 1,000 new funds each year, including many with very aggressive strategies. So it’s important to check each fund’s holdings. You can find that information on the fund company’s website or on a site like Morningstar (Here, for example, are the top holdings in Vanguard’s S&P 500 index fund). Step 2. Next, you’d want to estimate how much a loss might impact you. As with most questions in personal finance, there are two answers to consider: how it might affect you in dollar terms, and the degree to which a loss would simply be upsetting. Both are important. Step 3. If you determine the holding in question does represent a material risk, then you’d want to estimate the potential tax impact. Here are questions you might ask: What would the tax be if you exited the entire position? Would it push your income into the next capital gains bracket? Are there tax lots with less appreciation you could take advantage of? Do you have losses you could use to offset some of the gains? Do you expect to be in a higher or lower tax bracket next year? Step 4. If you conclude that the tax bill might be significant, what steps could you take to reduce a holding tax-efficiently? Here are strategies to consider: For starters, I suggest deciding on a target percentage for the holding. While ideally I prefer bringing any individual stock down to a 5% weighting, that figure isn’t a rule. All things being equal, the larger a portfolio, the more risk you can afford. After deciding on a target percentage, the simplest approach would be to set up a long-term sale plan—like dollar cost averaging but in reverse. Suppose you’d like to sell 1,200 shares of a given stock. You could sell 100 shares each month for twelve months. You’d do that regardless of whether the stock happens to be up or down that month. That 12-month schedule isn’t a rule. If your holding is very significant, you might opt for a longer timeframe. On the other hand, if you feel the stock has a particularly highflying valuation, you might choose a quicker pace. The key, in my view, is just to get started. As the writer Carveth Read wrote, “it’s better to be roughly right than precisely wrong.” Selling a stock down over time is the simplest way to reduce risk, but it’s hardly the most tax efficient. Another approach that’s been gaining in popularity is known as a 351 exchange fund. With a 351, the idea is that a group of investors, each with their own portfolios of appreciated securities, come together and collaborate to diversify their respective holdings. To provide a simplified illustration, imagine two investors, each with a concentrated holding, one in Microsoft and the other in Apple. Each would benefit by diversifying, and that’s what a 351 exchange fund allows. Each would contribute their respective shares into a common pool that would then hold some Apple and some Microsoft. This new investment would be structured as an ETF, and each investor would be issued shares proportional to the size of their contribution. Importantly, the initial creation of a 351 fund doesn’t entail any tax. Taxes are due only when an investor later sells shares of that ETF. This is a simplified example. In reality, a 351 exchange fund would hold many more than just two holdings. They’re actually required to meet various diversification requirements. As a result, investors in 351 funds may end up feeling sufficiently diversified and thus comfortable holding their fund shares for the long term. That would make this strategy potentially the most tax-efficient way to manage portfolio concentration risk. This is just an overview, though. If you’re interested in 351 strategies, I suggest further research. In July, The Wall Street Journal discussed these funds in some detail. In addition, a firm called Alpha Architect, the largest player in this area, has a number of helpful explanatory videos on its site.   Adam M. Grossman is the founder of Mayport, a fixed-fee wealth management firm. Sign up for Adam's Daily Ideas email, follow him on X @AdamMGrossman and check out his earlier articles.
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Roth Conversions and Taxes

ArticleJohn Urban  |  Aug 8, 2026

EVERY ARTICLE ABOUT Roth conversions says the same thing: pay the tax from taxable money, not from the IRA. That is good advice if you have taxable money. Plenty of retirees do not. Their savings sit almost entirely in a traditional IRA, built from years of 401(k) contributions and a rollover at retirement, with little brokerage money and no cash reserve worth naming. For them, “pay from outside money” is not advice. It is a condition they do not meet. Their real choice is a self-funded conversion or no conversion at all. The familiar warning is that self-funding requires a gross-up. You withdraw money to pay the conversion tax, that withdrawal is itself taxable, so you have to withdraw a little more. Less discussed is what else that withdrawal sets off. It makes more of your Social Security taxable, it raises your Medicare premiums two years later, and in a high-tax state it enlarges the amount that has to leave the IRA. Here is what those three cost, on one household. A cautious conversion Meet Dianne, a composite rather than a real person. She is 66, single, retired to Florida, with $1 million in a traditional IRA and nothing outside it. Social Security pays her $28,000 a year. She is past 59 and a half and already on Medicare. Florida keeps state income tax out of the arithmetic for now. She converts $40,000. Careful, modest, the size people choose when they are trying not to do anything dramatic. The tax on that conversion, paid from a checking account she does not have, would be $4,234. Funding it from the IRA instead, the withdrawal that covers it is $5,125, and her tax rises to match. That extra $891 is 17.4% of the $5,125 she withdrew. Her ordinary-income bracket is 12%. Twelve of those points are the tax on the withdrawal itself, which is the gross-up everybody expects. The other 5.4 points come from $2,300 of her Social Security being pulled into taxable income by that same withdrawal. Paying from cash, $21,500 of her benefit would be taxable. Self-funding, $23,800 is. The difference is caused by how she paid, not by what she converted, and nothing on her return will label it. Not a smaller version of a large one The effect is not linear. Run the same woman at $150,000 and 85% of her benefit, the statutory maximum, is already taxable before she funds the tax. The funding withdrawal drags in nothing further, and this particular cost is zero. That is not an argument for converting more. It is an argument against assuming a small conversion is simply a smaller version of a large one. The one that looks cautious can carry the higher marginal rate. What self-funding actually costs Give Dianne the $150,000 conversion, still with no outside cash, and add the state question. Still in Florida, $195,469 has to leave the traditional IRA to put $150,000 into the Roth. Move her to California, changing nothing else, and it is $219,751. That is $1.30 of IRA spent for every dollar reaching the Roth, against $1.47, and the gap is California income tax compounded through the gross-up. If a move across state lines is anywhere in your plan, the order of operations may matter more than the size of the conversion. But $1.47 invites a conclusion it does not support, and I would rather correct that myself than let it travel. A conversion is taxable whichever pocket pays. Of the $69,751 Dianne withdraws in California, roughly $44,639 replaces cash she would have spent anyway. The incremental cost of self-funding, in wealth given up, is $25,111. About 17% of the conversion, not 47. The bill that arrives in 2028 At that $150,000 conversion, self-funding also costs Dianne $1,735 in higher Medicare premiums, a surcharge of $6,355 rather than $4,620, charged on top of the standard premium, for one year, and hers alone as a single filer. The bill arrives two years late. Medicare sets her 2028 premiums from her 2026 income, so the cost is invisible at the moment she is deciding how to pay the 2026 tax. When it can still make sense Doing nothing is not free either. Money left in a traditional IRA comes out eventually, under required distributions, at whatever rates apply then, possibly to a survivor filing single, possibly to heirs facing a 10-year deadline. Where self-funding still holds up, a few things tend to be true. The rate gap is durable rather than a one-year accident. Whether it repays a cost this size depends on time, future tax rates and investment returns. A temporary dip in income is a thin foundation. A structural window, after retirement and before Social Security or required distributions begin, is more compelling. There is runway, because shrinking the portfolio to change its tax character needs years of tax-free growth to earn back. Age 59 and a half is cleanly behind you. The converted amount is not subject to the 10% additional tax on early distributions. A separate distribution taken to pay the tax generally is, unless an exception applies. And enough is left afterward. Check the balance after the funding withdrawal, not after the conversion. Dianne’s California IRA drops to $780,249, and whether that funds the next 30 years matters more than whether the conversion was tax-efficient. A practical warning about withholding Withholding from the conversion is not a cheaper way to pay the tax. It reduces what reaches the Roth. Elect 24% on Dianne’s $40,000 conversion, as this illustration does rather than as any custodian requires, and $9,600 goes to the IRS while $30,400 lands in the Roth, against $4,234 actually owed. The cash comes back next spring as a refund. The Roth room does not come back at all. Restating the rule Pay the conversion tax from outside cash if you have it. That remains the best answer. It is not an answer for the retiree whose savings are almost entirely in a traditional IRA. For that person, “never pay from the IRA” skips the actual decision, which is whether a self-funded conversion, with its full marginal cost, beats leaving the money where it is. Before deciding, count the gross-up, the Social Security effect, state tax and the Medicare bill two years later. Sometimes that arithmetic still says no. It beats applying a rule written for somebody with a different balance sheet. ________________________________________________________________________________ John Urban is the founder of RetireSmartIRA, a retirement tax-planning app. Earlier, he founded GT Nexus, a supply-chain software company acquired by Infor in 2015. He lives in Northern California with his wife, Kathy, and enjoys time with family, travel, reading, Bay Area sports, and the occasional deep dive into the fine print of the tax code.
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“Gerontocracy” in America

Chris Rush  |  Aug 6, 2026

"Thanks for sharing this, Chris. I found Moyn’s notion that “age limits for political office are a must” ageist, and his book’s loaded, buzzword-laden title polarizing. His sprawling narrative seems to conflate a demographic anomaly (the baby boom) and long-lamented political challenges such as special interest money and the incumbency effect, among other factors. Given that, his prescribed remedies miss the root causes and aim for a more convenient target: the aged. At age 54, he might consider what his ideas mean for his own cohort: Generation X. As a considerably smaller generation, we already lack much influence. Under Moyn’s proposals, Generation X—and future generations—might have even less of a voice upon reaching our “golden years.”"
- D.J.
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Jonathan’s Parting Thoughts: No. 8

Jonathan Clements  |  Aug 7, 2026

"Rob Berger had a YouTube video published 3 years ago titled "Avantis All Equity Market ETF (ticker: AVGE) Pros and Cons" where he discussed this fund which was new as it started in 2022 and he also made some comparisons with VT. I interpret Rod Berger's main concern about AVGE was the fact that as the fund was new that the newness alone was then disqualifying for him to include in his holdings. AVGE is also a fund of funds, is actively managed, tilts toward value, tilts towards US and uses a mathematical formula to look at past profitability to help fund management project which investments will be profitable in the future. That may parallel your investing thinking but I have gone with VT, for better or worse, which tracks the appropriate world equity index. A couple of key numbers and considerations - Expense ratios (net current) - AVGE 0.23%, VT 0.06% YTD gain per Morningstar 8/6/2025 to 8/7/2026 - AVGE +28.71%, VT +23.32% The VT fund at 6/30/2026 was about 80 times the size of AVGE The AVGE has a large Bid/Ask Spread which likely is caused because it is a "fund of funds" that trades underlying small-cap and value-tilted global equities and because of lower daily trading volume compared to a much larger fund like VT."
- William Perry
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Before Someone Else Decides

Kathleen Rehl  |  Aug 2, 2026

"Anthony, I’m sorry your health changed so quickly. A sudden change like this is exactly what makes these decisions so difficult. Although a CCRC may no longer be practical because of the waiting lists, you may still have other workable options. Depending on the support you now need, possibilities could include a rental senior community offering multiple levels of care, a standalone assisted living community, or paid support in your current home—perhaps as a bridge while you explore longer-term arrangements. I would begin with an assessment of your current needs and some knowledgeable local help. New Jersey’s county Area Agency on Aging can connect older adults and families with case management, in-home support, and other local services. An Aging Life Care Professional may also help you and your wife evaluate appropriate options and identify communities with current availability. I hope other New Jersey readers will share their experiences and specific suggestions. Wishing you and your wife clarity and good support as you consider your next steps."
- Kathleen Rehl
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FIFA Financials

R Quinn  |  Jul 19, 2026

"Same reason I refuse to spend $1,000 for one tickets to see former Led Zeppelin rock god Robert Plant (77 yo) in Chicago. Makes no sense. I'll just enjoy replaying the NPR Tiny Desk Concert instead. Best ticket bargain ever? Beatles 1966 at the old Cleveland Stadium. Ticket was $5.50."
- dana little
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Taxing Social Security benefits

R Quinn  |  Aug 6, 2026

"Ahh, the joy of definitions in the IRC. They got you either way."
- Mark Eckman
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Short term and long term Social Security planning

William Perry  |  Aug 4, 2026

"Deflation isn’t just “taking money out if circulation.” Deflation also tells consumers “don’t buy now, wait it will be cheaper tomorrow.” And consumers respond, and the economy contracts. Our last significant bout of deflation was the Great Depression. I’m not anxious to revisit those days."
- Kevin Rees
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For most retirees, the greatest fear is not death—it is running out of money before they die.

Matt Halperin  |  Aug 6, 2026

"Well Larry, the use there of can bring some satisfaction. A famous 'money guru' tells of after building a large pile of wealth, you can have the 'most fun you'll ever have with money' ... 'You can be outrageously generous.' I follow in the Bible, Matthew Chapter 6, verse 1."
- Donny Hrubes
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Looking Back On My Hard Luck Days

DAN SMITH  |  Aug 7, 2026

"Dan, I think Jonathan understood that difficult times can give us perspective, but what we do with that perspective is ultimately up to us. Hardship can make us bitter, or it can make us more grateful, resilient and compassionate. Like you, I’ve known enough difficult times to appreciate the good ones much more than I might have otherwise. I also smiled at your reason for being here. Jonathan created HumbleDollar to help people make better financial decisions, but I think he’d be pleased that it became something more; a community where people come for the financial wisdom and stay for the people. And yes, there are definitely a few characters around here."
- Andrew Clements
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Inflation, prices, COLAs, retirement and the last 16 years

R Quinn  |  Jul 27, 2026

"I suspect the posts you read from seniors are those that do not really have adequate funds built up in IRAs (or other investment orientated savings) to act as the buffer on top of SS. The world has however changed and anyone who has retired in the past 10 years (or is coming up to retirement) should be aware of the utility in maintaining equity market exposure as a key part of managing inflation (and other life event) risks. As has been discussed before SWR is only a tool not the entire answer. If you're asking how much can I draw from $1m capital then 40k pa (rising with inflation) is a reasonable answer for a 30 year lifespan etc. That does nothing to tell you whether $40k will support your lifestyle and/or leave enough surplus for unexpected needs. Hence why you also need a budget or alternately the discipline to live within the income. I'd suggest it is wise to at least think about financial strategy in weathering unexpected needs. But it doesn't need to negate the overall drawdown strategy - for some it might be drawing at only 3.5%, for others maintaining a cash-like emergency fund or being prepared to sell a second home or whatever. My approach is to have a notional "when it's gone, it's gone" pot to cover lumpy one-off spend. Then I top it up from excess from my planned drawings or if it goes, replenish by paring back lifestyle spending a bit. Some people might need to see that as a physically separate fund/account. That's personal choice (possibly for those allergic to spreadsheets/budgeting ;) ) and largely just accounting presentation."
- bbbobbins
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When your 401(k) excludes target date funds

JM  |  Aug 1, 2026

"What are the lowest fee funds? Maybe there's actually a good one."
- Randy Dobkin
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Risk and Taxes

ArticleAdam M. Grossman  |  Aug 8, 2026

AFTER YEARS OF heady gains in the stock market, many investors are facing the same question: To manage risk, they’d like to cut back on one or more of their holdings. But because of the potentially costly tax bill that might result, they aren’t sure exactly how to do that. How can you square this circle? One easy option would be to donate appreciated assets to charity. But that would make sense only if it aligns with your charitable goals and, of course, if you don’t need those funds for other uses. How else could you strike a balance between managing risk and limiting taxes? Here’s how I would answer this question. Step 1. I’d start by estimating the potential risk level among your holdings. While there’s no single litmus test, you could ask the following questions. First, how large a portion of your assets does any single holding represent? As a rule of thumb, I’d focus first on individual stocks that top 5%. Why 5%? My operating assumption is that any individual stock could experience a 50% decline during a crisis. So if a holding is limited to 5%, then a 50% drop would result in an overall portfolio impact of just 2.5%. I see that as very manageable. To be sure, stocks can certainly decline by more than 50%, but I view this as a reasonable figure for risk management. While I worry most about the risk posed by single stocks, it’s also important to examine the overall composition of your portfolio. That’s because, counterintuitively, a portfolio of 30 stocks could end up being riskier than a group of just 10. Harry Markowitz, the father of Modern Portfolio Theory, explained why. In his initial work back in the 1950s, Markowitz used railroad company stocks to explain the concept of diversification. There’s nothing inherently wrong with railroad stocks, Markowitz explained. But if a portfolio consists of only railroad stocks, then that would be a problem—because companies in the same industry are often impacted by the same economic factors. In other words, a portfolio consisting of a large number of holdings might only appear diversified, so it’s important to look under the hood. Another risk factor to consider: Do you work for a public company and own the company’s stock? If so, that would be a reason to consider diversifying more quickly (within the permitted time windows). What if you own only mutual funds or ETFs? Diversified funds tend to be less risky than individual stocks, but that’s not always the case. The fund industry launches as many as 1,000 new funds each year, including many with very aggressive strategies. So it’s important to check each fund’s holdings. You can find that information on the fund company’s website or on a site like Morningstar (Here, for example, are the top holdings in Vanguard’s S&P 500 index fund). Step 2. Next, you’d want to estimate how much a loss might impact you. As with most questions in personal finance, there are two answers to consider: how it might affect you in dollar terms, and the degree to which a loss would simply be upsetting. Both are important. Step 3. If you determine the holding in question does represent a material risk, then you’d want to estimate the potential tax impact. Here are questions you might ask: What would the tax be if you exited the entire position? Would it push your income into the next capital gains bracket? Are there tax lots with less appreciation you could take advantage of? Do you have losses you could use to offset some of the gains? Do you expect to be in a higher or lower tax bracket next year? Step 4. If you conclude that the tax bill might be significant, what steps could you take to reduce a holding tax-efficiently? Here are strategies to consider: For starters, I suggest deciding on a target percentage for the holding. While ideally I prefer bringing any individual stock down to a 5% weighting, that figure isn’t a rule. All things being equal, the larger a portfolio, the more risk you can afford. After deciding on a target percentage, the simplest approach would be to set up a long-term sale plan—like dollar cost averaging but in reverse. Suppose you’d like to sell 1,200 shares of a given stock. You could sell 100 shares each month for twelve months. You’d do that regardless of whether the stock happens to be up or down that month. That 12-month schedule isn’t a rule. If your holding is very significant, you might opt for a longer timeframe. On the other hand, if you feel the stock has a particularly highflying valuation, you might choose a quicker pace. The key, in my view, is just to get started. As the writer Carveth Read wrote, “it’s better to be roughly right than precisely wrong.” Selling a stock down over time is the simplest way to reduce risk, but it’s hardly the most tax efficient. Another approach that’s been gaining in popularity is known as a 351 exchange fund. With a 351, the idea is that a group of investors, each with their own portfolios of appreciated securities, come together and collaborate to diversify their respective holdings. To provide a simplified illustration, imagine two investors, each with a concentrated holding, one in Microsoft and the other in Apple. Each would benefit by diversifying, and that’s what a 351 exchange fund allows. Each would contribute their respective shares into a common pool that would then hold some Apple and some Microsoft. This new investment would be structured as an ETF, and each investor would be issued shares proportional to the size of their contribution. Importantly, the initial creation of a 351 fund doesn’t entail any tax. Taxes are due only when an investor later sells shares of that ETF. This is a simplified example. In reality, a 351 exchange fund would hold many more than just two holdings. They’re actually required to meet various diversification requirements. As a result, investors in 351 funds may end up feeling sufficiently diversified and thus comfortable holding their fund shares for the long term. That would make this strategy potentially the most tax-efficient way to manage portfolio concentration risk. This is just an overview, though. If you’re interested in 351 strategies, I suggest further research. In July, The Wall Street Journal discussed these funds in some detail. In addition, a firm called Alpha Architect, the largest player in this area, has a number of helpful explanatory videos on its site.   Adam M. Grossman is the founder of Mayport, a fixed-fee wealth management firm. Sign up for Adam's Daily Ideas email, follow him on X @AdamMGrossman and check out his earlier articles.
Read more »

Roth Conversions and Taxes

ArticleJohn Urban  |  Aug 8, 2026

EVERY ARTICLE ABOUT Roth conversions says the same thing: pay the tax from taxable money, not from the IRA. That is good advice if you have taxable money. Plenty of retirees do not. Their savings sit almost entirely in a traditional IRA, built from years of 401(k) contributions and a rollover at retirement, with little brokerage money and no cash reserve worth naming. For them, “pay from outside money” is not advice. It is a condition they do not meet. Their real choice is a self-funded conversion or no conversion at all. The familiar warning is that self-funding requires a gross-up. You withdraw money to pay the conversion tax, that withdrawal is itself taxable, so you have to withdraw a little more. Less discussed is what else that withdrawal sets off. It makes more of your Social Security taxable, it raises your Medicare premiums two years later, and in a high-tax state it enlarges the amount that has to leave the IRA. Here is what those three cost, on one household. A cautious conversion Meet Dianne, a composite rather than a real person. She is 66, single, retired to Florida, with $1 million in a traditional IRA and nothing outside it. Social Security pays her $28,000 a year. She is past 59 and a half and already on Medicare. Florida keeps state income tax out of the arithmetic for now. She converts $40,000. Careful, modest, the size people choose when they are trying not to do anything dramatic. The tax on that conversion, paid from a checking account she does not have, would be $4,234. Funding it from the IRA instead, the withdrawal that covers it is $5,125, and her tax rises to match. That extra $891 is 17.4% of the $5,125 she withdrew. Her ordinary-income bracket is 12%. Twelve of those points are the tax on the withdrawal itself, which is the gross-up everybody expects. The other 5.4 points come from $2,300 of her Social Security being pulled into taxable income by that same withdrawal. Paying from cash, $21,500 of her benefit would be taxable. Self-funding, $23,800 is. The difference is caused by how she paid, not by what she converted, and nothing on her return will label it. Not a smaller version of a large one The effect is not linear. Run the same woman at $150,000 and 85% of her benefit, the statutory maximum, is already taxable before she funds the tax. The funding withdrawal drags in nothing further, and this particular cost is zero. That is not an argument for converting more. It is an argument against assuming a small conversion is simply a smaller version of a large one. The one that looks cautious can carry the higher marginal rate. What self-funding actually costs Give Dianne the $150,000 conversion, still with no outside cash, and add the state question. Still in Florida, $195,469 has to leave the traditional IRA to put $150,000 into the Roth. Move her to California, changing nothing else, and it is $219,751. That is $1.30 of IRA spent for every dollar reaching the Roth, against $1.47, and the gap is California income tax compounded through the gross-up. If a move across state lines is anywhere in your plan, the order of operations may matter more than the size of the conversion. But $1.47 invites a conclusion it does not support, and I would rather correct that myself than let it travel. A conversion is taxable whichever pocket pays. Of the $69,751 Dianne withdraws in California, roughly $44,639 replaces cash she would have spent anyway. The incremental cost of self-funding, in wealth given up, is $25,111. About 17% of the conversion, not 47. The bill that arrives in 2028 At that $150,000 conversion, self-funding also costs Dianne $1,735 in higher Medicare premiums, a surcharge of $6,355 rather than $4,620, charged on top of the standard premium, for one year, and hers alone as a single filer. The bill arrives two years late. Medicare sets her 2028 premiums from her 2026 income, so the cost is invisible at the moment she is deciding how to pay the 2026 tax. When it can still make sense Doing nothing is not free either. Money left in a traditional IRA comes out eventually, under required distributions, at whatever rates apply then, possibly to a survivor filing single, possibly to heirs facing a 10-year deadline. Where self-funding still holds up, a few things tend to be true. The rate gap is durable rather than a one-year accident. Whether it repays a cost this size depends on time, future tax rates and investment returns. A temporary dip in income is a thin foundation. A structural window, after retirement and before Social Security or required distributions begin, is more compelling. There is runway, because shrinking the portfolio to change its tax character needs years of tax-free growth to earn back. Age 59 and a half is cleanly behind you. The converted amount is not subject to the 10% additional tax on early distributions. A separate distribution taken to pay the tax generally is, unless an exception applies. And enough is left afterward. Check the balance after the funding withdrawal, not after the conversion. Dianne’s California IRA drops to $780,249, and whether that funds the next 30 years matters more than whether the conversion was tax-efficient. A practical warning about withholding Withholding from the conversion is not a cheaper way to pay the tax. It reduces what reaches the Roth. Elect 24% on Dianne’s $40,000 conversion, as this illustration does rather than as any custodian requires, and $9,600 goes to the IRS while $30,400 lands in the Roth, against $4,234 actually owed. The cash comes back next spring as a refund. The Roth room does not come back at all. Restating the rule Pay the conversion tax from outside cash if you have it. That remains the best answer. It is not an answer for the retiree whose savings are almost entirely in a traditional IRA. For that person, “never pay from the IRA” skips the actual decision, which is whether a self-funded conversion, with its full marginal cost, beats leaving the money where it is. Before deciding, count the gross-up, the Social Security effect, state tax and the Medicare bill two years later. Sometimes that arithmetic still says no. It beats applying a rule written for somebody with a different balance sheet. ________________________________________________________________________________ John Urban is the founder of RetireSmartIRA, a retirement tax-planning app. Earlier, he founded GT Nexus, a supply-chain software company acquired by Infor in 2015. He lives in Northern California with his wife, Kathy, and enjoys time with family, travel, reading, Bay Area sports, and the occasional deep dive into the fine print of the tax code.
Read more »

“Gerontocracy” in America

Chris Rush  |  Aug 6, 2026

"Thanks for sharing this, Chris. I found Moyn’s notion that “age limits for political office are a must” ageist, and his book’s loaded, buzzword-laden title polarizing. His sprawling narrative seems to conflate a demographic anomaly (the baby boom) and long-lamented political challenges such as special interest money and the incumbency effect, among other factors. Given that, his prescribed remedies miss the root causes and aim for a more convenient target: the aged. At age 54, he might consider what his ideas mean for his own cohort: Generation X. As a considerably smaller generation, we already lack much influence. Under Moyn’s proposals, Generation X—and future generations—might have even less of a voice upon reaching our “golden years.”"
- D.J.
Read more »

Jonathan’s Parting Thoughts: No. 8

Jonathan Clements  |  Aug 7, 2026

"Rob Berger had a YouTube video published 3 years ago titled "Avantis All Equity Market ETF (ticker: AVGE) Pros and Cons" where he discussed this fund which was new as it started in 2022 and he also made some comparisons with VT. I interpret Rod Berger's main concern about AVGE was the fact that as the fund was new that the newness alone was then disqualifying for him to include in his holdings. AVGE is also a fund of funds, is actively managed, tilts toward value, tilts towards US and uses a mathematical formula to look at past profitability to help fund management project which investments will be profitable in the future. That may parallel your investing thinking but I have gone with VT, for better or worse, which tracks the appropriate world equity index. A couple of key numbers and considerations - Expense ratios (net current) - AVGE 0.23%, VT 0.06% YTD gain per Morningstar 8/6/2025 to 8/7/2026 - AVGE +28.71%, VT +23.32% The VT fund at 6/30/2026 was about 80 times the size of AVGE The AVGE has a large Bid/Ask Spread which likely is caused because it is a "fund of funds" that trades underlying small-cap and value-tilted global equities and because of lower daily trading volume compared to a much larger fund like VT."
- William Perry
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Before Someone Else Decides

Kathleen Rehl  |  Aug 2, 2026

"Anthony, I’m sorry your health changed so quickly. A sudden change like this is exactly what makes these decisions so difficult. Although a CCRC may no longer be practical because of the waiting lists, you may still have other workable options. Depending on the support you now need, possibilities could include a rental senior community offering multiple levels of care, a standalone assisted living community, or paid support in your current home—perhaps as a bridge while you explore longer-term arrangements. I would begin with an assessment of your current needs and some knowledgeable local help. New Jersey’s county Area Agency on Aging can connect older adults and families with case management, in-home support, and other local services. An Aging Life Care Professional may also help you and your wife evaluate appropriate options and identify communities with current availability. I hope other New Jersey readers will share their experiences and specific suggestions. Wishing you and your wife clarity and good support as you consider your next steps."
- Kathleen Rehl
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FIFA Financials

R Quinn  |  Jul 19, 2026

"Same reason I refuse to spend $1,000 for one tickets to see former Led Zeppelin rock god Robert Plant (77 yo) in Chicago. Makes no sense. I'll just enjoy replaying the NPR Tiny Desk Concert instead. Best ticket bargain ever? Beatles 1966 at the old Cleveland Stadium. Ticket was $5.50."
- dana little
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Taxing Social Security benefits

R Quinn  |  Aug 6, 2026

"Ahh, the joy of definitions in the IRC. They got you either way."
- Mark Eckman
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Short term and long term Social Security planning

William Perry  |  Aug 4, 2026

"Deflation isn’t just “taking money out if circulation.” Deflation also tells consumers “don’t buy now, wait it will be cheaper tomorrow.” And consumers respond, and the economy contracts. Our last significant bout of deflation was the Great Depression. I’m not anxious to revisit those days."
- Kevin Rees
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For most retirees, the greatest fear is not death—it is running out of money before they die.

Matt Halperin  |  Aug 6, 2026

"Well Larry, the use there of can bring some satisfaction. A famous 'money guru' tells of after building a large pile of wealth, you can have the 'most fun you'll ever have with money' ... 'You can be outrageously generous.' I follow in the Bible, Matthew Chapter 6, verse 1."
- Donny Hrubes
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Manifesto

Aug 7, 2026

NO. 4: GOOD SAVINGS habits are the greatest of the financial virtues. If we aren’t good savers, it’s all but impossible to grow wealthy. What if we are? We’ll likely prosper, even if we’re mediocre investors.

think

Aug 8, 2026

MIMETIC DESIRE. While our needs may be driven by hardwired instincts to avoid, say, hunger and cold, our wants are often heavily influenced by others. According to mimetic theory, those we look up to show us what’s worth wanting. For instance, the boss or a celebrity discusses the joys of jogging—and suddenly we find ourselves buying running shoes.

act

Aug 8, 2026

REFINANCE if it'll noticeably reduce your mortgage rate. That can be a smart move if, within a few years, you can recoup the refinancing’s cost through lower monthly payments. Want to get a handle on how much you’re truly saving? If you have, say, 19 years left on your loan, find out the monthly payment on a 19-year mortgage at today’s lower rate.

Truths

Aug 7, 2026

NO. 15: WE FAVOR the familiar. We suffer from home bias, meaning we’re drawn to our employer’s shares, local corporations and stocks of companies whose products we use. We also favor U.S. stocks and shy away from foreign shares. These familiar investments create a portfolio we’re comfortable with—but maybe not one that’s well diversified.

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Manifesto

Aug 7, 2026

NO. 4: GOOD SAVINGS habits are the greatest of the financial virtues. If we aren’t good savers, it’s all but impossible to grow wealthy. What if we are? We’ll likely prosper, even if we’re mediocre investors.

Spotlight: Abuse

Low-Cost Protection

Paul Merriman   |  Mar 1, 2022

I’VE BEEN IN LOVE with index funds for a long time, especially for a reason that doesn’t get enough attention. Lots of financial writers correctly praise index funds for their low costs, low turnover, low drama, massive and easy diversification, and numerous other good attributes.
But the No. 1 reason you should love index funds is they will keep you out of the hands of pushy, unethical financial salespeople. If Wall Street knows you’re committed to index funds,

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A Dirty Business

Jonathan Clements   |  Jun 18, 2022

ON MONDAY, MAY 2, I logged onto my Chase bank account—and discovered my balance was $992.43, many thousands of dollars less than I expected. My first thought: I’m going to get hit with a low-balance fee.
That, alas, should have been the least of my worries.
I clicked through to see the account details, and discovered that check No. 1126 had been made out to Milton Cherry for $7,000. But none of the writing on the check was mine,

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Passkeys, Anyone?

1PF   |  Nov 30, 2024

I’m starting to see sites offering passkeys. There’s a good explanation at this link of what passkeys are, how they work, and why they’re even better than passwords with two-factor authentication.
If you’ve begun using passkeys, what has been your experience?

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Stop Bank Robbers

Adam M. Grossman   |  Sep 10, 2023

“YOUR CHECKING ACCOUNT balance is low.” It’s an alert none of us wants to receive, especially if we’ve just been paid. But that was the message that a friend—let’s call him Ron—got recently. A hacker had gained control of his account and started bleeding it dry.
Ron, it turns out, was lucky to have received that alert. Another friend—let’s call him Arthur—received no such alert when his account was also taken over by hackers this summer.

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Numbers Game

Kyle McIntosh   |  Oct 19, 2021

IT HAPPENED AGAIN. For the third time in two years, our credit card number was stolen. I learned this yesterday when I received the now-too-frequent question from Chase: “Do you recognize this gas station purchase for $1?” We live nowhere near the station in question, so I knew something was amiss.
I appreciate Chase’s diligence in identifying such transactions, and the fact that we won’t be held liable for any fraudulent charges. Still, I’ve grown weary of the whole process of cancelling credit cards,

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Leave It at Home

Sonja Haggert   |  Aug 3, 2023

MY WALLET WAS STOLEN many years ago when I was traveling on business. I had gotten onto a crowded elevator at my hotel. The last person to get on was a woman who pretended to get her heel caught in the elevator door.
The thieves were a young couple—and they were real pros. While we were focused on her, her partner proceeded to open the flap of my handbag and help himself to my wallet.

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Spotlight: Connor

Everyday Arbitrage

Richard Connor   |  Dec 27, 2022

SOME PROFESSIONAL investors make a living through arbitrage, exploiting small, short-term differences in the price of stocks, bonds, commodities and currencies. For the average investor, such trades can seem far too complicated. Still, I often look for opportunities for what I call “everyday arbitrage”—situations where I can take advantage of a difference in, say, tax rates or a product’s price. Here’s an example: In a recent article, I wrote about how 2022’s higher interest rates will significantly reduce the payouts that some retirees will receive from the 2023 lump-sum option on their pension. Today’s high-interest rates also mean that commercially available annuities are generating more income. This unique environment leads to an “interest-rate arbitrage” opportunity. A friend elected to file for her pension and receive a lump sum in 2022. She could then purchase an immediate lifetime annuity with the money and receive some 25% more than her pension plan’s monthly amount. Had she waited until 2023, her lump-sum payout would have been reduced by about 25%. I employed a tax arbitrage in 2017, which was a high-tax year for us. In March, I stopped working fulltime. I received a severance package and a vacation-time payout, started consulting work and began my pension. Coincidentally, my wife took a new job that paid her the highest salary of her career. All this meant 2017 was our highest income year ever, which pushed us into a higher marginal tax bracket. Our income would likely be lower in future years—which led to the tax arbitrage. In December, I opened a solo 401(k) and made a tax-deductible contribution equal to almost my entire consulting income for that year. In a subsequent year, I can withdraw this money as taxable income—but at a lower marginal tax rate. I’m now over age 59½, so there’s no…
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Free Social Security Taxability Calculator

Rick Connor   |  Aug 14, 2025

While researching an article on the impact of the recent One Big Beautiful Bill Act (OBBBA) I stumbled upon a very useful, free Social Security Taxability calculator. The calculator is a downloadable Excel spreadsheet. I found it while viewing a YouTube video presented by The Retirement Nerds. The video did a nice job of explaining some of the provisions of the tax bill, especially the new $6,000 bonus senior deduction. The presenter used the calculator to demonstrate the interaction between income, SS taxability, and how the new deduction comes into play. I wasn’t familiar with this site or the presenter so I did a bit of research and it seemed legitimate so I downloaded it from this site.  I’ve played around with it a number of times and I’m pretty impressed. It is not a complete tax return calculator, but it does a few things well, and provides some useful information for what-if studies. It has been updated for to include the 2025 tax law changes, including the new senior deduction. In general, you input your “base case” which is your AGI, tax-exempt income, the amount of your SS benefits, and any applicable Schedule 1 adjustments (there is a tab that describes them).  The tool calculates the percent, and amount, of your SS benefit that is taxable. It shows the details of that calculation – one of the more complex calculations in the tax code. It also determines your standard deduction, your new senior deduction (if any), taxable income, estimated tax, effective tax rate, and marginal tax bracket. It includes a nice table, and graphic, that shows how much income “headroom” you have until you reach the next tax bracket. One of the more interesting features is a large table entitled “Incremental scenarios adding more non-Social Security Income”.  This table…
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Hierarchy of Savings

Richard Connor   |  Mar 4, 2021

EARLY IN MY CAREER, one of my mentors at work used to talk about “excess paychecks.” He was a single, senior engineer who lived frugally. Back then, the concept seemed ridiculous to me. But I’ve come to realize he was right: Most of us don’t need every dollar we’re paid for living expenses, so we should think carefully about where to stash the excess. That notion came to mind recently when taking to a friend. She’s five years from retirement, concerned about today’s high stock market valuations and wondering if maxing out her 401(k) is her best choice. Would it be smarter, she wondered, to use her extra money to pay down consumer debt, pay ahead on her mortgage or make some home improvements? Here’s my take on the “hierarchy of savings”: Emergency fund. I would make this a top priority. An annual Federal Reserve survey has found that 37% of U.S. families can’t handle an unexpected $400 expense. The pandemic’s economic fallout has highlighted how perilous that can be. My advice: Depending on how secure your job is, set aside between three and six months of living expenses in conservative investments as an emergency reserve. High-interest debt. After you’ve established an emergency fund, it’s time to attack high-cost debt. For most of us, that means credit card balances. Even in today’s low-rate environment, credit cards charge an average 16%, according to Bankrate. Paying down high-interest debt is smart financially, plus it provides a great psychic win. Employer retirement plans. There’s a host of tax-favored employment-based retirement plans, including for self-employed individuals. The standard financial guidance is to invest at least enough to capture any matching employer contribution. I recommend to my sons that they start with a minimum 10% of their income. Health savings accounts. As I’ve written before,…
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Losing Benefits

Richard Connor   |  Mar 25, 2024

SOCIAL SECURITY retirement benefits are a critical source of income for many seniors. But as I’ve discovered from preparing tax returns, there’s a lot of confusion surrounding two key issues. The first issue: the reduction in benefits that occurs when folks claim benefits before their full retirement age (FRA) of 66 or 67, but continue to work. This is the so-called earnings test. If folks are under their FRA for the full year, the Social Security Administration will reduce their benefits by $1 for every $2 earned above $22,320, which is the earnings limit for 2024. Suppose you earned $42,320, or $20,000 above the earnings limit. Your Social Security benefit would be reduced by $10,000. The maximum Social Security benefit for 2024 is $58,476. To lose this entire sum, you’d have to earn twice this amount, or $116,952, plus the earnings limit of $22,320, for a total of $139,272 in 2024. In the year you reach your FRA, the earnings limit is significantly higher—it’s set at $59,520 for 2024—plus the reduction in benefits is $1 for every $3 earned above this limit. What happens once you get to your FRA? There’s no reduction in benefits, regardless of how much you earn. On top of that, once you reach your FRA, Social Security recalculates your monthly check, so you get credit for the benefits you earlier lost. The second confusing topic: the taxation of Social Security benefits. Whether your retirement benefits are partially taxable depends on your combined income. What’s that? It’s your adjusted gross income, plus any non-taxable interest and half of your Social Security benefits. For a single person, if your combined annual income is less than $25,000, none of your Social Security benefits is taxable. Between $25,000 and $34,000, up to 50% of benefits are taxable. If your…
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Free Tax Returns – That time of year.

Rick Connor   |  Feb 4, 2025

It's that time of year - time to gather your records and prepare your 2024 tax return.  Many HD contributers are involved the IRS' Voluntary income Tax Assistance (VITA) program,  helping to prepare free tax returns for qualifying individuals. This is an excellent program for lower income tax payers. The linked website has a tool for finding a local site. If you have family, friends, or neighbors who might benefit from this excellent program, please think about letting them know.  If you are looking for a volunteer opportunity that combines your financial and tax acumen with a real need, consider getting involved. This is my 7th year, and I have to say the volunteers I've worked with have consistently been some of the smartest, and most caring, individuals I've met. Good luck with your taxes.
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Many Words Later

Richard Connor   |  May 21, 2024

THIS IS MY 150TH article for HumbleDollar. My first appeared on Aug. 12, 2019. I’m not sure when I became aware of the site, but it’s become an important part of my life. I’ve truly enjoyed the writing, along with reading the work of others and interacting with the editor, other contributors and readers. For my 150th, I thought about looking back over the past five years and compiling a list of 150 observations. But that proved too challenging for my ancient brain. Instead, here are my top 15 thoughts, observations and random musings, offered in no particular order. I’m still capable of learning. Indeed, I’ve learned so much more from commenters and other writers than I’ve manage to teach. Being exposed to other people’s thoughts and ideas is a daily joy. The name HumbleDollar really fits. The more I learn, the more I realize how little I know and how many smart people there are. Civilized discussion between good people is a wonderful part of life. The comments I’ve received have been kind, thoughtful and enlightening. We should all strive to do more of it. Many retirees love to travel. Many retirees enjoy travel. Many retirees have almost no interest in travel. I consider myself somewhere between love and enjoy. I have friends in the “not interested” category. They aren’t wrong and I’m not right. We each get to choose how we lead our lives, and we can change if we choose. Medicare is a pretty good deal, but it’s not free. Medicare's income-related monthly adjustment amount, or IRMAA, can be a big issue, especially if your final years of employment included some high-income years—but you may also be able to get those premium surcharges waived. Inflation isn’t dead. When I started writing articles in 2019, inflation wasn’t even…
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