Will They Claw Back My Tax Breaks? Should I “Buy, Borrow, and Die?” And More - AMA #5 - E99

Time for another AMA with Jesse! First, Randy asks what it means to be rich, leading to an interesting evaluation of personal values, goals, and circumstances. Jesse explores relativity, “keeping up with the Joneses”, and what it means to have “enough”. Then, Bob asks about the potential tax burdens on beneficiaries and heirs, and Tom wonders whether some tax savings are worth the effort of logistical complexity. The fourth question comes from regular listener, Yogi, asking about the role of bonds in diversifying a portfolio. Jesse gets into the details of which bonds are which, which financial goals they’re good for, and when you should consider other options. To wrap up the show, Hector asks about the “buy, borrow, die” strategy employed by the ultra-wealthy: buy appreciating assets, borrow against them for liquidity without selling, and pass them to heirs with a stepped-up cost basis, avoiding capital gains taxes. 

If you’d like a question in a future AMA, send Jesse a message!

Tune in next week for the 100th episode celebration!

 

Key Takeaways:
• Wealth varies based on individual values and circumstances. It’s less about achieving a specific number and more about feeling secure and content with your resources.
• The tax burden of inherited IRAs is based on the beneficiary's income and tax bracket, which can differ significantly from the original contributor's tax savings.
• Decisions like Roth conversions depend on whether the potential tax savings justify the added effort and complexity for an individual.
• Bonds provide stability and dependability for short-term goals. Short-duration, high-quality bonds like U.S. Treasuries are less sensitive to interest rate changes and offer more reliability.
• While effective for minimizing taxes, the “buy, borrow, die” strategy involves risks such as margin calls, regulatory changes, and the cumulative cost of loan interest potentially outweighing benefits.
• Wealth strategies should focus on understanding and minimizing tax liabilities without excessive risk, avoiding overly aggressive tax avoidance tactics.

 

Key Timestamps:
(02:17) Question 1: What Does It Mean to Be Rich?
(09:11) Question 2: Concerns About 529 College Savings Plans
(16:57) Question 3: Roth Conversions and Tax Savings
(23:50) Question 4: Evaluating Bond Performance and Diversification
(31:23) Question 5: The Buy, Borrow, Die Strategy

 

Key Topics Discussed:
The Best Interest, Jesse Cramer, Rochester New York, financial planner, financial advisor, wealth management, retirement planning, tax planning, personal finance, buy borrow die, Roth conversions, tax avoidance, inheritance, bonds, diversification, rich, five year rules

 

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The Best Interest Podcast is a personal podcast meant for educational and entertainment. It should not be taken as financial advice, and is not prescriptive of your financial situation.