MANY PEOPLE don't know, but there is a net investment income tax of 3.8% that applies to some of your income. Today, I want to discuss what it is, how we can reduce its impact, and how we can save money. Let’s dive right in: Net Investment Income Tax (NIIT) The net investment income tax is imposed on investment income if the modified adjusted gross income (adjusted gross income + foreign income exclusion) is more than $200,000 for single filers or $250,000 for those married filing jointly. This tax is applied to the lower of:

• Net investment income
• Modified adjusted gross income above the threshold

Example Say you have a modified adjusted gross income of $220,000. Your net investment income is $40,000. You are single. How much tax will you pay? $220,000 - $200,000 = $20,000 (above the threshold) The amount subject to the tax is the lesser of:

• $20,000 (income above the threshold), or
• $40,000 of net investment income

$20,000 * 0.038 = $760 of tax Common examples of investment income

• Gains from the sale of stocks, bonds, and mutual funds
• Capital gain distributions from mutual funds
• Gain from the sale of investment real estate (Primary residence is excluded, up to $250k / $500k of gain)
• Dividends (qualified and ordinary)
• Interest

Note that the NIIT does not apply to:

• W-2 wages
• Self-employment income
• Social Security
• Distributions from retirement accounts (401(k), IRA, Roth)
• Income from an active trade or business

Now let’s talk about how we can save some money on taxes: 1. Interest Municipal bond interest (received from a city or state) is tax-exempt. So, if you have a lot of interest income, consider shifting that portion of your portfolio to a municipal bond ETF and avoid the NIIT. However, you still need to do the math to make sure it's worth it. Make sure the yield * (1 - marginal tax rate) is lower than the municipal bond yield. Remember. the goal is not to minimize taxes. The goal is to maximize your after-tax return. 2. Dividends Dividends count toward the 3.8% NIIT. This applies to both qualified and ordinary dividends. If you want to minimize the impact of NIIT, you can rebalance the portfolio to emphasize growth stocks over dividend-paying stocks. That said, make sure your overall asset allocation and risk tolerance are not compromised just to save on taxes. Where possible, holding higher-dividend investments inside tax-advantaged accounts can also reduce exposure. 3. Capital gains timing & tax-loss harvesting Capital gains increase net investment income, which can trigger or increase NIIT. Some planning ideas:

• Realize gains in lower-income years, if possible
• Offset gains with harvested losses
• Avoid unnecessary fund turnover in taxable accounts
• Lower net investment income means lower exposure to the 3.8% tax
• Lower your adjusted gross income

4. Lower your adjusted gross income If you stay below the income threshold, you don’t pay the net investment income tax at all. Make sure you’re taking advantage of accounts that lower your income, such as:

• 401(k), 403(b), 457(b)
• SEP IRA
• Traditional IRA (if meet income threshold and/or no workplace retirement plan)
• HSA

This helps reduce your regular income tax and the potential NIIT. 5. Installment sales If you can, spreading the gains from the sale of an investment property over multiple years may reduce the impact on your taxable income and limit how much of the gain is subject to the NIIT in any one year. 6. 1031 exchange If you own investment real estate, a 1031 like-kind exchange can defer capital gains and reduce the immediate impact of the NIIT. This doesn’t eliminate the tax forever, but it can significantly improve cash flow and tax efficiency. Final thoughts The net investment income tax often gets overlooked, but for higher earners, it can add thousands of dollars to the tax bill without you even knowing. A few small planning decisions, like asset location, income timing, and account contributions, can make a difference over time. I hope you enjoyed this one. Looking forward to your comments!   Bogdan Sheremeta is a licensed CPA based in Illinois with experience at Deloitte and a Fortune 200 multinational.

WE ARE A NATION obsessed with youth sports. Time magazine says it's a $15 billion-a-year industry. As many as 60 million kids participate. Sports are good for kids for all kinds of reasons: promoting exercise and a healthy lifestyle, enhancing team work and relationships, providing structure, instilling confidence to overcome challenges and delivering the joy of playing. During our children’s sports journeys, we parents are often led to believe that our little sports stars are on the path to the holy grail—a full athletic college scholarship. The sports-industry complex of coaches, trainers, camp and tournament directors, and recruiting advisors often promote this fantasy. And we parents bite hard. After all, who doesn’t want their kid to receive a $200,000 free ride? But will they? Make no mistake: Youth sports aren’t free. College athletes typically require five to 10 years of dedicated travel sport participation, with the associated fees, equipment, travel and hotel costs, coaching fees, supplemental training, camps, showcase tournaments and tryouts, and perhaps a video or recruiting advisor. The commonly used and derided term “pay to play” highlights the financial underpinnings of youth sports. It's common for families to spend $2,000 to 5,000 a year for travel team participants, and $20,000 a year or more isn’t unheard of. I am intimately familiar with youth soccer and estimate the typical college soccer player incurred total costs of around $50,000 to get there. Even a barest-of-bones elite youth soccer journey would likely cost $25,000. On a strictly financial basis, 529 savings plans and Coverdell education savings accounts are far more reliable sources of college funding. In addition to high costs, youth players must grapple with all the other aspects of becoming an elite athlete—maintaining interest and discipline, remaining injury-free, continuous training and constant competition at the highest levels. Elite athletes then face the final challenge in capturing an athletic scholarship: selection by a college coach. Only 3% of high schoolers get to play NCAA Division 1 and 2 college sports, according to ScholarshipStats.com—and not all will receive scholarships, let alone a full ride. They may also end up at colleges that aren’t the best fit for them. The bottom line: The odds of landing on a D1 or D2 team roster are about the same as landing on a single roulette number. D3 colleges, which comprise the largest NCAA division, do not provide athletic scholarships. NAIA and junior colleges do offer athletic scholarships and may provide a good alternative, assuming the academic and campus programs fit the athlete. Selection numbers are particularly daunting in widely played sports like basketball and soccer, where less than 1% of U.S. high school boys are chosen for D1 teams. Some D1 obsessed parents even steer their kids to sports with fewer youth players, and larger college rosters, such as ice hockey, lacrosse or men’s baseball. With these sports, selection chances are roughly triple that of basketball and soccer, but still a miserly 2% to 6%. Another tactic, utilized mostly to gain acceptance—rather than money—at stretch academic colleges, is to have kids excel in niche sports. Talent at equestrian, crew, fencing, rifle and javelin throwing may increase the odds of being noticed. One father helped his two kids get into Ivy League colleges by undertaking a multi-year program to assist them in becoming among the best high school javelin throwers. Even for those few players selected to play college sports, most don’t receive a full ride. Only football, men’s and women’s basketball, and a few additional women’s sports—volleyball, tennis, gymnastics—are NCAA D1 full-ride sports. In men’s soccer, for example, D1 and D2 colleges can grant 9.9 and nine scholarships, respectively, for a roster of around 29 players—in other words, just a one-third scholarship per player. Some colleges, including members of the Ivy League, don’t offer athletic scholarships. Others don’t fully fund all athletic scholarships, such as some Patriot League colleges. Women’s scholarship opportunities in some sports are higher than men’s. That’s largely the result of Title IX equivalency requirements, which means colleges essentially need to offset the 65 to 85 football scholarships granted to men. Women’s D1 soccer can give 14 scholarships, versus 9.9 for men, plus women’s soccer has 129 more D1 teams than men’s soccer. Still, like high school boys, girls face the same dismal overall 3% selection rate to NCAA D1 and D2 sports. Children should participate in youth sports for the many positive benefits. Meanwhile, parents should relax and enjoy their kid’s sports journey. Too many families hang onto the false hope that youth sports will lead directly to a college scholarship. But unfortunately, this ride isn’t free—and there’s likely no scholarship at the end of the journey. John Yeigh is the author of a book outlining the highs, lows and challenges of youth sports, with publication slated for 2020. His two children overcame their Dad’s genetic deficits and became college athletes. John’s previous articles include Other People's Stuff, All Stocks and Off the Payroll. [xyz-ihs snippet="Donate"]

LISTEN TO THE financial news, and you’ll often hear reference to “the VIX.” But what exactly is the VIX, and how important is it? The VIX index is intended to be a measure of investor sentiment. For that reason, it’s often referred to as the market’s “fear gauge.” How can investor sentiment be measured? While the math is complex, it’s based on a straightforward principle: When investors get nervous, they look for ways to protect their portfolios and are sometimes even willing to pay for that protection. This was the insight that led to the initial development of the VIX back in 1989. Two finance professors, Menachem Brenner and Dan Galai, observed that stock options—and specifically, the prices of those options—provided a sort of X-Ray into investors’ feelings. That’s because certain options, known as “put” options, are designed to protect portfolios from losses. They’re like insurance. So when demand for put options increases, and as a result, pushes up the prices of those options, that’s an indication that investors are feeling more nervous. On the other hand, during periods when investors are feeling optimistic, put options will fall in price. Instead, “call” options, which allow investors to magnify their gains in rising markets, will go up in price. The relative prices of these two types of options can tell us a lot about investors’ mindset, and that’s the basis of the VIX. In very simple terms, when put option prices are rising, the VIX rises. And when put option prices are falling, the VIX falls. A higher VIX reading thus means investors are becoming more fearful. Because of its function as a sentiment gauge, market commentators like to talk about the VIX, especially when it’s rising. But I’m not sure we should put too much stock in it. That’s for two reasons. First, and most importantly, the VIX is limited because it’s only able to measure current investor sentiment. It doesn’t know anything about what will happen in the future. Consider how the VIX behaved during some significant market events over the past 20 years.  In August 2008, the VIX was at a relatively low level, right around 20. It seemed to be indicating calm seas. But just a month later, Lehman Brothers went into bankruptcy, and the stock market began to fall. The VIX did eventually spike up in response to this crisis, ultimately rising all the way to 80—a very high reading—but by that point, it was too late. It was effectively reporting yesterday’s news. At other points, the VIX has been misleadingly high. In the spring of 2020, when the market dropped more than 30%, fear levels were running high, and the VIX spiked up to 82. But with the benefit of hindsight, we can see that the VIX wasn’t communicating anything useful. That’s because the spring of 2020 would have been an ideal time to buy. Between March 16, when the VIX hit its peak, and the end of that year, the S&P 500 rose 57%. The VIX provided no hint that this rally was coming. Nearly the same sequence of events occurred in 2025. In April, when investor worries were running high over the White House’s new tariff policies, the VIX spiked up, topping 50 on April 8. But that also would have been an ideal time to buy. A short time later, the White House changed course on tariffs, and the market rebounded, gaining 37% through the end of the year. Why is the VIX such a poor predictor? In his book Finance for Normal People, Meir Statman describes how investors are susceptible to recency bias. He cites a Gallup survey that asked investors, “Do you think that now is a good time to invest in financial markets?” Almost invariably, investors answered “yes” when markets had been rising. In February 2000, for example, 78% of those surveyed responded positively—just a month before the market fell into a multi-year bear market. The problem is that our minds’ are prone to extrapolating from current conditions. And since the VIX simply mimics investors’ thinking, it too just extrapolates. The VIX has no idea when the market is about to reverse course, as it did in 2000, 2008 or 2025. Despite this flaw, however, you might wonder if the VIX would nonetheless be useful as a portfolio hedge. In other words, even if the effect is delayed, the VIX seems like it might be helpful if it goes up when the market goes down, and vice versa.  In The Four Pillars of Investing, William Bernstein looks at this question. He examines a popular ETF (ticker: VXX) that tracks the VIX index. On the surface, this looks like an effective way to protect a portfolio. In the first three months of 2020, for example, when Covid arrived, and the stock market began to drop, this ETF rose more than 200%. But that was one narrow time period. Other periods were punishing for VXX. Bernstein points to 2010-2011, when the S&P 500 rose about 8.5% per year, on average. What did VXX do? You might expect that it would have fallen proportionately. But it cratered, losing 74% of its value. Bernstein asks wryly, “You didn’t expect that someone would sell you bear market insurance for free, did you?” That, unfortunately, is the issue. Because of the way it’s constructed, the VIX doesn’t work as a perfect offset to the stock market. That’s why, in my view, investors are best served by a much simpler portfolio structure, consisting of stocks and primarily short-term Treasury bonds. While this combination isn’t flawless, it’s delivered far less volatile results over time than any strategy built around the VIX. Like many things in finance, the VIX is interesting, but ultimately not very useful.   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.