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What financial planning basics should you consider to maintain a healthy financial life? Join the conversation on common financial planning strategies on education, retirement, taxes and estate planning.

Be Smart About Your 529 Plan Beneficiary and Save More for College

For many people who are considering having children or already have started a family, the prospect of saving for college can be daunting. Rapidly rising tuition and related costs create the impression of a seemingly insurmountable savings goal. In the past, Wealthfront has written posts to help its clients navigate some of the difficult choices surrounding saving for college, including how much to save and which 529 plan to choose. With estimates of the cost of a college education for a child born in 2015 running as high as $95,000 for in-state public college, and $323,000 for private college, this can be one of the most daunting financial goals young parents face. There are a couple options for really maximizing […]

Which Is More Important: Minimizing Taxes or Minimizing Fees?

Our goal at Wealthfront is to maximize your net-of-fees, after-tax returns. If you’re a regular reader of this blog, you’ll know that we say that phrase over and over again. Our chief investment officer, Burton Malkiel, is famous for pointing out that there are only three things you can control when investing – your costs, diversification and taxes – so we built our service around managing those things for our clients. The funny thing is, while we get a lot of credit for building strong portfolios and minimizing fees, the third thing – minimizing taxes – may actually be the most important of all. Our research shows that smart strategies to minimize taxes could enhance your net-of-fees, after-tax return by […]

Three Financial Issues to Consider When Getting Married

While it is often said that no two things are more certain than death and taxes, marriage can bring a measure of uncertainty to your taxes as well as your finances. Questions have arisen among Wealthfront’s clients about how tying the knot — a milestone in many people’s lives — can impact your financial obligations to the government, and potentially affect how you structure your finances. With this post, we share a few points on this topic. Keep in mind, however, that finances and taxes can vary greatly depending on an individual’s or a couple’s specific situation, and what state they live in. We recommend consulting a qualified accountant or tax attorney. In fact, we have written a couple of […]

10 Things You Probably Didn’t Know About Tax-Loss Harvesting (and should)

For decades tax-loss harvesting was an obscure tool to minimize taxes that was only available to the ultra wealthy. That all changed when Wealthfront launched its tax-loss harvesting service in October 2012.  Many pundits and industry professionals who were unfamiliar with its benefits thought it couldn’t add much value. One of our competitors even referred to the concept as a “joke.”  Well times have changed and now every  automated investment service offers a version of tax-loss harvesting. However, there are still many misperceptions of how and when tax-loss harvesting creates value, even among very intelligent investors. Here’s our Top 10 list of things you probably didn’t know about tax-loss harvesting: Tax-loss harvesting derives its benefit from the combination of tax-rate arbitrage […]

Even Warren Buffett Prefers Index Funds

In last year’s Berkshire Hathaway annual report and shareholder letter Warren Buffett caused quite a stir by suggesting that upon his demise the assets he was leaving his wife, in trust, should be invested in index funds (see “Warren Buffett: ‘Investing Advice For You–And My Wife,’” “Will Warren Buffett’s investment advice work for you?,” “Warren Buffett’s 90-10 Rule of Thumb for Retirement Investing,” or “The Warren Buffett Guide to Retirement Investing“). The primary reason for the hubbub was probably the contradiction it represented in coming from Mr. Buffett. An endorsement of index investing from the man who is thought of as one of the greatest stock pickers of all time seemed to fly in the face of all that Buffett […]

Qualified Small Business Stock Is An Often Overlooked Tax Windfall

It’s no secret that small businesses have long been the growth engine of the US economy. With that in mind, over the years Congress has packed the tax code with lots of breaks for those investing in small business. One of the best breaks around — and no secret to experienced angel and venture capital investors in Silicon Valley — is qualified small business stock (QSBS). What Is QSBS? Like all things in tax, the IRS definition of qualified small business  can get complicated, and it changes depending on the section of the tax code in question. For our purposes, we’ll be focusing on Section 1202 of the Internal Revenue Code (IRC). To qualify as QSBS under Section 1202: The […]

Minimize Your Investment Taxes

Our Chief Investment Officer, Burt Malkiel, famed author of “A Random Walk Down Wall Street,” has spent the past 40 years explaining that investors can’t control the market, so they should focus their efforts on the three investment tactics within their control: Diversify and rebalance your portfolio Minimize fees Minimize taxes Previously, we published posts on the value of diversification and minimizing fees. However, too often the industry avoids talking about one of the most important aspects of maximizing your long-term investment results: minimizing taxes. The Seven Ways to Minimize Taxes There are seven ways Wealthfront can significantly reduce your investment taxes: Using Index Funds Rebalancing your portfolio with dividends Applying different asset allocations for taxable & retirement accounts Tax–loss […]

When Should You Exercise Your Stock Options?

Stock options have value precisely because they are an option. The fact that you have an extended amount of time to decide whether and when to buy your employer’s stock at a fixed price should have tremendous value. That’s why publicly-traded stock options are valued higher than the amount by which the price of the underlying stock exceeds the exercise price (please see Why Employee Stock Options are More Valuable than Exchange-Traded Stock Options for a more detailed explanation). Your stock option loses its option value the moment you exercise because you no longer have flexibility around when and if you should exercise. As a result many people wonder when does it make sense to exercise an option. Tax Rates […]

When Should You Consider a SEP-IRA?

If you are a self-employed contract worker or sole-proprietor, there’s a retirement account you may not have heard about that’s worth considering: the Simplified Employee Pension IRA or SEP-IRA for short. The key advantage of the SEP-IRA is the high annual maximum contribution limit, which at $53,000, is much higher than the $5,500 cap associated with a traditional IRA ($6,500 if you’re over 50). What Is a SEP-IRA? The SEP-IRA was created in 1978 to provide a tax-advantaged retirement plan for small businesses. Contributions to the SEP-IRA are made by a small business into an account for the benefit of an individual, typically the sole employee. SEP-IRA accounts are available to small businesses ranging from sole proprietorships, partnerships, LLCs, S-Corporations […]