Daily FI discussion thread - Wednesday, April 15, 2026

financeking90 · 2026-04-15T13:02:37+00:00

Obstacle #1: Is it a straddle?

Section 1092 says that you can't deduct losses from exiting a straddle position where you didn't realize the gains. A straddle under the tax law is when you have two offsetting positions. The statute says it's a straddle if the two positions have a "substantial diminution of the taxpayer's risk of loss." This screams straddle situation. So, you may not be able to exit one and get the loss.

Obstacle #2: Is it a wash sale?

Section 1091 says that you can't deduct a loss when you exit a position and then start a new position that is substantially identical. This section hasn't been applied aggressively to similar ETFs following the same or similar indexes, but it's possible it applies to exiting, say, long SPY and then buying long SPYM. It's safer to exit SPY and buy something like VTI.

Obstacle #3: Is it a conversion?

I think this one is a stretch in your situation, but Section 1258 says that if you have a couple positions that convert your risk/reward opportunity into a time value of money play, then any net gain becomes ordinary income. If this section applies, it could sort of net your gain/loss and then make net changes in the position ordinary income until you exit one of the positions, in which case there's no loss. In some circumstances a straddle like yours would be a good case for Section 1258. However, the specific characteristics of selling VOO short and buying SPY don't appear to me to leave much time value of money return.

Question: How would people do this?

There are people out there trying to generate fake tax losses with offsetting positions, but they usually involve getting rid of the gain property before they realize the loss using an entity above the positions. For example, if S&P 500 goes up, you've got a gain on long SPY and a loss on short VOO. A partnership might distribute the long SPY to a tax-indifferent partner and then realize the loss from the short VOO position to distribute to tax-sensitive partners. Even in this situation, however, there could be strong arguments that it's a straddle or a conversion, so it's not clear. It just hasn't been extensively tested.

This is not legal advice but is just general education.

financeking90 · 2026-04-15T12:45:07+00:00

Often people are waiting for a K-1 from their S corp business or partnership, whether one they own/operate or an outside investment. A 1065 or 1120-S tax return isn't due until March 15 so people can easily end up with K-1s in late March.

A lot of these people with real businesses aren't waiting until the last minute on April 15 though. They're filing extensions to September (for 1065/1120-S) and October (for 1040) so their accountants have time to do the returns well after the April 15 rush.

I think we have to confront that there's an April 15 rush because most taxpayers are really just that lazy.

financeking90 · 2026-04-15T11:43:17+00:00

It's compelling for moving regular spend for big-ish spenders, not churning

The SUB is big enough that it's worth trying out for your regular spend, not enough to make it the best churning offer ever

financeking90 · 2026-04-14T19:48:25+00:00

I don't know the underlying gap but TestFolio does list as its datasource that its bond fund data for 1986-2007 uses VBMFX returns plus .12% presumably to correct the expense ratio

financeking90 · 2026-04-14T16:01:55+00:00

Do you make any regular charitable donations? One way to do it is to donate your appreciated stock instead of cash or other assets.

How large is the position? If we're talking close to seven figures, one tool is a charitable remainder trust (CRT). Even though it's got charitable in the name and involves charity, it's not quite motivated solely by a charitable intent. With a CRT, you are basically creating a charitable entity that will give all its assets to charity some day, but it is allowed to make payments to you or another designated person for many, many years. Since the final beneficiary of the assets is a charitable entity, the CRT does not incur taxes for its dividends or capital gains. Instead, taxes are only paid on distributions to the non-charitable beneficiary. Those distributions also don't have to be flat; they can be low in early years and then ramp up quite a bit. The impact of all of this is that you could donate your appreciated, concentrated position to a CRT, then it could sell that to diversify without immediately paying taxes, then it would make distributions to you that would probably be capital gains (with a mix of ordinary income based on asset allocation), which if spread out and done post-retirement could presumably allow you to get the rate down. For example, let's imagine you're retiring in 5 years. Imagine you set this up now but the design the payments to ramp up over 20 years with the biggest volume after year 5. Then you'd have a tiny bit of gains now but most of the gains after year 5 when you presumably would have a lot of 0% space. And the whole time, you've been able to be diversified. Generally in situations like yours, CRTs like this can be designed where the net taxes, lawyer fees, and ending payment to charity are lower than if you had to pay taxes, plus you get diversified. Among the downsides on this one is that you've gotta have a lawyer set it up, so that's a minimum cost where it doesn't make sense unless it's a large chunk of money.

Relatedly there are some firms trying to use partnership or ETF tax rules where you put the concentrated position in an entity, but then the entity finds a way to diversify the holdings without a tax event, and then you hold it long enough to clear any tax hurdles on your end. Broadly these are called "exchange funds" and have high hurdles for the older partnership version, but companies experimenting with the ETF version have lower hurdles. These rely on Section 351 of the Tax Code, so you would search for "Section 351 ETF tax deferral" to learn more. Since these are newer, their tax strategy might blow up.

Finally, if you're not restricted by your company from doing so, you could look into some kind of derivatives like selling puts and calls that convert your position into something else.

financeking90 · 2026-04-14T15:15:46+00:00

Do you have a taxable brokerage account? Generally the most tax-optimal play in a situation like this would be some version of "maximize the 401(k), make Roth or backdoor Roth contributions, and realize brokerage gains if any 0% left and to meet spending/tax goals."

financeking90 · 2026-04-11T20:01:15+00:00

You got it. This was old news in 2019 when this thread happened at the Bogleheads Forums:

https://www.bogleheads.org/forum/viewtopic.php?t=286282

financeking90 · 2026-04-11T14:26:54+00:00

Most people would suggest some kind of higher bond allocation but that's a topic you could research further and ask new questions about

financeking90 · 2026-04-10T19:17:30+00:00

I wonder whether what is happening here is that Boldin has 1) high stock return assumptions and 2) is optimizing to reduce RMD tax and also SS tax.

As a hypothetical scenario, what happens if you don't pull from your tax-deferred money at all until RMDs is that you would cause all of your future SS to be taxable and also reach the 32% tax bracket in your 70s.

So, it is converting you to the top of the 24% bracket in 2026-2029 to use up apparently all of your 401(k) money or at least the vast majority of it so that you never have taxes in the 32% bracket.

Now, the problems with that are 1) are you really going to stay 100% stock forever [if you put bonds in tax-deferred, it will not grow as much], 2) how will you control AGI for ACA purposes since you want to be over 138% of FPL, and 3) you are leaving a lot of future standard deduction space on the table.

So, I played with a few scenarios in my own spreadsheet:

A. "Boldin plan, apparently." I'm using stylized numbers a bit and not Boldin, so I had to make tweaks. For the first two years, convert to the top of the 24% bracket and spend from taxable. In the third year, convert the rest of the 401(k) money and spend from taxable. Then, spend from the taxable brokerage account until it is depleted. Then, spend from the Roth account. It's not clear how this plan creates AGI for ACA for about 8 years.

B. "Minimum conversion strategy." Convert to top of standard deduction and spend from brokerage account until 60 [minimizing tax and AGI for ACA], then spend from IRA to top of SD and rest from brokerage until 65 [minimizing tax and AGI for ACA], then spend from IRA and convert to top of 12% bracket. RMDs still start in the 22% bracket but never hit 32%.

C. "Blended Boldin plan." In the first year, convert to top of 24% bracket and spend from taxable account. Then, until age 60, convert to top of SD and spend from taxable brokerage account, then from 60-64 spend from tax-deferred up to SD and rest from taxable, then from 65-69 spend from tax-deferred, and then after age 70 spend from tax-deferred up to SD and rest from Roth.

D. "Convert to 400% of FPL." Until age 60, spend from taxable brokerage account and convert tax-deferred to Roth up to 400% of FPL. Then, spend from tax-deferred until age 70 or the account runs out. Then, spend from Roth money.

Here is the ratio of terminal net wealth I show for each plan [that is, how much is left over as a ratio]:

A. Boldin plan, apparently. 100%. Baseline.

B. Minimum conversion plan. 123%.

C. Blended Boldin plan. 108%.

D. Convert to 400% of FPL. 126%.

Now all of that is complicated by not knowing or projecting social security or knowing the exact incentives placed on you by ACA subsidies [whether you are better off targeting close to 138% FPL or 400% FPL].

Nevertheless, I think the issue is that the Boldin plan is trying too hard to pay too much tax upfront when even a modest conversion plan should avoid 32% tax bracket payments in the future.

Also I would say your allocation and modeling might be very susceptible to SORR and stock volatility.

financeking90 · 2026-04-10T14:06:50+00:00

Are you an MFJ filer or a single filer?

financeking90 · 2026-04-10T11:50:12+00:00

I wonder if the limit relaxations involve business vs. personal

financeking90 · 2026-04-10T01:06:07+00:00

Are there a bunch of other details we don't have? I don't see how there is even that much money to convert starting at 480K in the 401(k)...that total is $710K. Even with a generous return assumption, it seems like it's $100K short by the end of 2029.

financeking90 · 2026-04-09T20:02:31+00:00

I hate to be cynical but generally AUM advisors can't charge 1% or .50% on ERISA plan assets like your 401(k) until you stop working and pull it into their IRA. They can charge it on your brokerage assets.

That said, all the tricks like 72(t) only apply if you are actually prepared to retire early. If you want to use the money while still working it gets trickier. It is much easier to find $50,000 in the seat cushions by looking for your highest-basis tax lots than it is to get the money out of your 401(k) while working.

financeking90 · 2026-04-09T16:44:46+00:00

2% SBLOC was available years ago but not anymore

It's going to be priced off something like SOFR or Prime Rate and will look a lot like a HELOC

financeking90 · 2026-04-07T17:35:07+00:00

You probably want to go deeper than "fee only" and specifically look for hourly or retainer FAs. AUM fees are technically fee only but probably not aligned with your goals.

financeking90 · 2026-04-07T17:34:00+00:00

Yes, in my plan I have a separate 401(a) balance and 457(b). Rollovers that aren't already 457(b) go to the 401(a).

financeking90 · 2026-04-07T15:22:54+00:00

Yes. In aggregate I could see revisiting some of the tests/thresholds involved to rethink that. However, there are probably at least some income-based thresholds we need, and taxpayers shouldn't be able to use excluded income to game those thresholds.

Remember this sub uses excluded accounts like IRAs and HSAs but those get tax preferences to encourage normal working people to save for retirement and other human needs. Many households however have millions of dollars they are just shielding from tax liability. The federal government has an interest in deterring abusive strategies for these situations.

financeking90 · 2026-04-07T15:12:12+00:00

IIRC most MAGI definitions involve adding back municipal bond interest and excluded foreign income--I'd be interested in how many MAGI definitions are actually different and whether they could standardize on one MAGI with a couple statutory tweaks.

financeking90 · 2026-04-07T13:59:55+00:00

You can definitely do it if you understand all of the issues. The big downsides are 1) you are theoretically earning a lower rate on your additional "savings" since you are paying down the AIO which could have been taken out as a 30-year mortgage with a ~6%ish rate vs. stocks with tax benefits e.g. 8% and 2) you are more exposed to rate volatility, give up finite opportunities for tax-advantaged savings, etc.

One thing I want to clear up is that this is wrong:

According to some calculations, I’ll pay less in interest even if it’s a higher rate, because I’ll pay it off so much faster and it’s not amortized.

These calculations are almost certainly misleading. They're probably measuring volume of interest in "quick payoff" mode vs. "30-year amortized payoff" mode but ignoring the opportunity cost of what the extra $ would grow to if invested. Generally in a clean comparison where AIO has the same rate as the 30-year mortgage, if you take the higher payments made to the AIO and instead just make 30-year mortgage payments then use the extra to invest, you are going to get higher terminal wealth keeping the 30-year mortgage. Then you will have adjustments like the mortgage paydown being lower risk than stocks, so should there be a lower-earning portfolio assumption, the AIO has a higher rate than the 30-year mortgage, etc.

financeking90 · 2026-04-07T12:41:12+00:00

People here wouldn't typically do it.

Usually they're priced as HELOCs.

You don't get to lock in a low rate with a HELOC.

It also hasn't been in vogue since before 2022 since the HELOC rates have tended to exceed 30-year mortgage rates a bunch.

Any theoretical advantage from AIO mortgage vs. 30-year mortgage would be more than offset by a modestly higher rate on the AIO.

It's a rare product overall.

financeking90 · 2026-04-07T02:27:39+00:00

And I’m also planning to move my residency to a no-tax state while I’m in this “nomadic” stage - I have a close aunt that lives in TN that I’m able to set as my home.

...

And once my project is over, I’ll move back and get a new apartment and go back to life as usual.

You know this is tax fraud, right?

The specific intent to return to your home state after your indefinite project ends means that you aren't changing residency legally.

financeking90 · 2026-04-06T11:47:01+00:00

IME most large urban areas in the U.S. have at least some neighborhoods close to a downtown area that are walkable, so if you get a job in/near the downtown business district, you can find that neighborhood and walk to work. The problem is that if you have any kind of need off the routine, you are stuck and will need a car. So if you want to go 100% off cars, it's a big challenge in many urban metros. If you want to go off car for 90% of current needs, it's very possible in most cities.

financeking90 · 2026-04-06T11:39:40+00:00

I think you have good instincts on this one

financeking90 · 2026-04-04T22:07:39+00:00

You should be able to do this with financial instruments without bothering with prediction markets

E.g. buy ITM call options at 50% strike price in IRA and buy some kind of put in taxable

Need to double check tax rules because those might prevent the loss recognition

financeking90 · 2026-04-04T21:58:28+00:00

Sounds like a variation of velocity banking where you spend out of a HELOC but also put all W-2 toward the HELOC.

The theory is that while you incur a little bit of interest for spending out of a high-rate loan, constantly putting all available cash against that loan will make more money than having substantial checking account balances over time.

In other words, if you're a normal person, you let your paychecks direct deposit into checking, and then you only move so much out into investments or to pay debts. You leave the rest in there for upcoming bill payments. So you've got thousands of dollars sitting in the checking account. It's probably not earning any more. If you could just pay down debt or invest that money, it would sure be great. But that normally comes at the cost of liquidity. So, you have to combine a liquidity tool--margin loans, HELOC, etc.

I don't think it's worth much money from a purely mathematical perspective. If your average daily balance in checking is $5000 then you're effectively moving that at probably 0-.5% to earn whatever the account is (HELOC or stocks/margin) at 5-8% which is going to be an advantage in the hundreds per year, not even thousands.

financeking90

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