From f8409fff7a5345cd4246eea6b8eb0fa746245ec8 Mon Sep 17 00:00:00 2001 From: Greg Pomerantz Date: Thu, 27 Aug 2026 20:32:26 -0400 Subject: [PATCH] RESEARCH.md: placement premise (IRA distributions taxed ordinary at withdrawal, UBTI excepted) + constrained-taxable volatility rule --- fundlab/RESEARCH.md | 50 +++++++++++++++++++++++++++++++++++++++++++++ 1 file changed, 50 insertions(+) diff --git a/fundlab/RESEARCH.md b/fundlab/RESEARCH.md index ac0cd94..7ee4720 100644 --- a/fundlab/RESEARCH.md +++ b/fundlab/RESEARCH.md @@ -682,3 +682,53 @@ when relevant. All of 3-4 above are taxable-only by nature. Post-OBBBA (Pub. L. 119-21) items I could not re-verify live (SearXNG index down): 199A specified-investment-asset scope/sunset, SALT cap, QCD dollar limit. Verify with tax pro before relying. + +### Placement premise + constrained-taxable rule (2026-08-27) +Premise (user-stated, verified): distributions on assets held in a +TRADITIONAL IRA are also taxed - deferred, but at the ORDINARY rate +at withdrawal. Price appreciation and every distribution (div, +interest, cap-gain dist) come out as ordinary income; the character +is destroyed. Exception: K-1 UBTI is taxed CURRENTLY, not deferred. +So the IRA is an ordinary-rate bucket: tax-favorable character +(LTCG / QD / tax-exempt / ROC-deferral) is worthless inside it; +ordinary character only gets deferral there. + +Constrained-taxable rule (user's proposal, agreed with refinements): +the tax-exempt accounts are larger in aggregate, so some funds that +prefer the taxable account will end up in the IRA. User's rule: for +the scarce taxable space, select for VOLATILITY (big potential +returns AND losses): in down years harvest and swap into a similar +non-substantially-identical fund (no wash sale), in up years hold +and register the LTCG at the LTCG rate that the IRA would tax as +ordinary. + +Agreed. The counterfactual makes it exact: the same swing inside +the IRA generates ZERO tax events; inside the taxable account, up -> +(15-20%) LTCG, down -> a CURRENT deduction (offsets gains 1:1 + +$3k ordinary + carryforward). Both terms scale with the size of the +swing, so volatility is the right selection variable. Refinements: +- The exact objective is tax-arb per dollar = (future tau_ord - + tau_char) x expected favorable return + harvest value. Volatility + proxies both terms, but it must be volatility in POSITIVE + expected-return strategies (risk premium), not variance for its + own sake. +- Ordering for scarce space: (1) MUNIS first - the IRA destroys + 100% of the exemption, the saving is certain and immediate, and + munis are wash-sale EXEMPT (1091(c)(3)(B)): harvest and rebuy the + SAME fund next day. (2) high-return/high-vol accumulators - the + deferral term is largest, and the user's premise (future ordinary + rate rises) widens the gap every year. (3) steady low-yield + favorable-character funds last - they lose the least in the IRA. +- The harvest term is a BONUS, the deferral term the MAIN EVENT: a + loss in a no-gain year is worth only $3k x tau_ord (~$1k) unless + there are concurrent gains to offset. The deferral term is + (tau_ord - 15%) on every dollar of appreciation - uncapped. +- Basis management: harvest size = NAV vs basis. Buying in up years + builds high-basis lots = fatter future harvests. +- Use the rule to PRIORITIZE among funds you would own anyway; the + tax benefit (~1.5-2.5%/yr on balance) does not justify ADDING + risk by itself. +- Swap mechanics: different mutual funds are not substantially + identical (different holdings/NAV) - the standard harvest-and-swap + is safe; the 250-candidate universe makes a like-for-like + substitute usually available.