Wealthspire - Blog

The Simple Truth about Backdoor Roth IRA and Mega Backdoor Roth 401(k) Plans

The Wealthspire Team — Thu, 23 Jul 2026 22:02:57 GMT

Understanding the Basics: Backdoor Roth vs. Mega Backdoor Roth

Every year, articles seem to pop up highlighting the Backdoor Roth IRA and Mega Backdoor Roth in 401(k) plans. Quite often they are framed as if the author has uncovered some secret, hidden loophole in the tax code. In reality, these strategies are well-established and, when available, are both straightforward and highly effective.

The real takeaway is simple: they offer a powerful way to set aside money for long-term growth, with the added benefit of tax-free treatment down the road. Just as importantly, under current tax law, these accounts are not subject to required minimum distributions, giving you greater flexibility and control in retirement.

Before we dive into these topics, let’s discuss the fundamentals of Backdoor Roth IRA and Mega Backdoor Roth IRAs. A Backdoor Roth IRA is a strategy that allows high-income individuals to contribute to a Roth IRA by first making a non-deductible contribution to a Traditional IRA and then converting those funds to a Roth IRA. This approach bypasses Roth income limits and enables tax-free growth and withdrawals in retirement.

A Mega Backdoor Roth is an advanced strategy that uses a 401(k) plan to contribute after-tax dollars beyond standard limits and then convert those funds into a Roth 401(k) or Roth IRA. When available, it allows individuals to move significantly larger amounts into tax-free Roth accounts each year, far exceeding traditional contribution caps.

Why These Strategies Matter for High Earners

Now, these names alone may evoke a sense of exclusivity, perhaps even a clever workaround to outmaneuver the IRS. While these strategies are indeed powerful tools for building tax-efficient wealth, they are far from secret loopholes. In reality, they are well-established planning techniques that are sanctioned and widely available, and when used appropriately, may enhance long-term financial outcomes.

At their core, both strategies are designed to create access to one of the most valuable vehicles in retirement planning: the Roth account. Unlike traditional tax-deferred accounts, Roth assets grow tax-free and are generally eligible for tax-free withdrawals subject to applicable requirements, an especially attractive feature in a world of uncertain tax policy. However, these strategies may be particularly relevant to certain higher-income individuals, where thoughtful planning becomes not just beneficial, but essential.

The Hidden Challenges of Tax-Deferred Savings

For many successful professionals, time is often the most limited resource. Building a career, running a business, and managing family responsibilities can leave little room for optimizing retirement strategies. As a result, savings often accumulate heavily in tax-deferred accounts like traditional IRAs or 401(k)s. While these accounts provide an immediate tax benefit, they can create unintended challenges down the road.

One of the most significant comes in the form of Required Minimum Distributions (RMDs). Beginning at age 73 and rising to 75 for those born in 1960 or later, retirees are required to start withdrawing funds from tax-deferred accounts. While manageable for many, these forced distributions can push retirees into higher tax brackets, increase taxable income, and even elevate Medicare premiums. What was once a tax-saving strategy during working years can evolve into a tax-management issue in retirement.

The impact doesn’t stop there. For those focused on legacy planning, the SECURE Act of 2019 introduced additional complexity. Non-spouse beneficiaries are now generally required to fully distribute inherited retirement accounts within ten years. The exceptions are for a minor child of the deceased, although the 10-year rule would apply once adulthood is reached, a beneficiary who is chronically ill or disable and a beneficiary that is not more than 10 years younger than the original owner. For heirs in their peak earning years, this can result in distributions taxed at rates as high as 37% federally, before factoring in any state taxes. In contrast, inherited Roth IRAs follow the same timeline but offer a crucial advantage: distributions remain tax-free.

This is where Backdoor and Mega Backdoor Roth strategies can play a meaningful role. While not suitable for everyone, they can provide a way to systematically reposition assets into tax-free environments and thus reducing future tax exposure and improving flexibility for both retirees and their beneficiaries.

Think of the Distinction This Way

A Backdoor Roth IRA is typically geared toward individual savers who exceed income limits for direct Roth contributions.
A Mega Backdoor Roth leverages employer-sponsored retirement plans, allowing participants—often business owners or high earners—to contribute significantly more into Roth accounts through after-tax contributions and in-plan conversions.

When implemented correctly, these strategies can meaningfully reshape a retirement plan. However, they are not without complexity. Contribution rules, pro-rata calculations, plan design limitations, and IRS compliance all require careful navigation. This is where the guidance of an experienced financial advisor becomes invaluable by ensuring that the strategy is not only appropriate, but executed with precision.

For business owners and consultants, the opportunity can be even greater. Properly structured retirement plans, whether defined contribution or defined benefit, can open the door to advanced savings strategies while balancing the needs of highly compensated employees and regulatory requirements.

Final Thoughts

While these strategies won’t apply to every investor, for those who stand to benefit, the potential for tax savings may be meaningful for certain investors. More importantly, they represent a proactive approach to planning that prioritizes both current efficiency and future flexibility.

In a landscape where tax rules continue to evolve, the real advantage isn’t in finding a loophole—it’s in having a thoughtful, well-executed plan.

Ultimately, Backdoor Roth and Mega Backdoor Roth strategies are not about exploiting loopholes, but more about making thoughtful, forward-looking decisions within the existing rules. For the right individuals, they can create meaningful tax diversification and long-term flexibility. As with any advanced planning strategy, success depends on careful execution and alignment with your broader financial goals.

Looking Past the Hype: An Investor’s Guide to IPOs

The Wealthspire Team — Fri, 05 Jun 2026 09:00:00 GMT

Summary

A wave of potential or widely discussed future high-profile IPOs (e.g., SpaceX, OpenAI, Anthropic, if pursued) are generating significant investor interest. These are companies with strong growth narratives, dominant positions in emerging industries, and a level of visibility that naturally draws investor curiosity. For many clients, the appeal is intuitive: the opportunity to “get in early” on what could become defining companies of the next decade.

But that framing, while compelling, tends to obscure an important point. History suggests IPOs are often underwhelming entry points for investors because of how and when public investors are able to invest in such opportunities. IPOs historically underperformed the broader public market in their early years, even after adjusting for comparable size and style. This is not a short-term anomaly or a function of market cycles, rather a dynamic observed across multiple market periods.

This FAQ outlines what investors should know, including why IPO performance tends to disappoint, how access works, and how these companies ultimately enter portfolios through public markets.

What Investors Should Know

An IPO, or initial public offering, is the process by which a private company offers shares to the public for the first time. It allows the company to raise capital from a broad base of investors and marks the transition from private to publicly traded status. Once listed, shares trade on a stock exchange and are available for purchase by everyday investors.

What Does History Tell Us About IPO Investments?

Historically, IPOs underperformed comparable publicly listed companies, a dynamic that is well documented in studies going back to the 1980s and still holds today. Recent data between 2010 and 2024 reflect the same story; in years one and two, IPOs lag benchmarks significantly, by roughly 8 to 9% in year one and 6% in year two, based on size-matched benchmark comparisons in the referenced dataset.

Percentage Returns on IPOs from 2010-2024 During the First Five Years After Issuing

	First six months	Second six months	First year	Second year	Third year	Fourth year	Fifth year	Average of Years 1-5
Size-matched benchmark
IPO firms	-1.7%	-1.5%	-0.8%	2.9%	11.7%	24.3%	7.3%	8.7%
Size-matched	5.3%	3.5%	8.6%	8.8%	17.5%	16.2%	11.2%	12.4%
Difference	-7.0%	-5.0%	-9.4%	-5.9%	-5.8%	8.1%	-3.9%	-3.7%
Size & book-to-market matched benchmark
IPO firms	-1.7%	-1.5%	-0.8%	2.9%	11.7%	24.3%	7.3%	8.7%
Size & BM-matched	5.7%	1.6%	7.3%	9.3%	16.5%	16.2%	11.0%	12.0%
Difference	-7.4%	-3.1%	-8.1%	-6.4%	-4.8%	8.1%	-3.7%	-3.3%
No. of IPOs	1,816	1,812	1,816	1,728	1,607	1,439	1,086

Returns are through December 31, 2025. Thus, the fifth-year returns are only for those IPOs from 2010 to 2020, and the fourth-year returns are only for those IPOs from 2010 to 2021, etc. Note that the fifth-year returns are available only for those IPOs that survived for at least four years. Note: The 20171220 best efforts IPO of Dogness raised over $50 million and should not have been excluded in other tables. Average is defined as the geometric mean of years 1 through 5 of trading post IPO.

Source: Ritter, Jay R. "Initial Public Offerings: Updated Statistics." University of Florida, Warrington College of Business. Updated March 12, 2026. Available at: https://site.warrington.ufl.edu/ritter/files/IPO-Statistics.pdf

The IPO performance data reflects broad historical averages and does not represent the performance of an investable index or strategy. Comparisons to benchmarks are provided for context only and are subject to differences in composition, liquidity, and investability.

Perhaps more telling than the average return profile is the path those returns take. Even in cases where IPOs ultimately go on to succeed, the early experience for investors is rarely smooth. In the sample of largest U.S. IPOs since 2000 shown here, each experienced a drawdown of at least 10% within its first year of trading, with a median maximum drawdown exceeding 50%. While this is a limited sample, it reinforces how even the largest, high-profile public offerings have historically been accompanied by significant volatility.

Understanding why this happens is an important nuance. IPO pricing often reflects a high degree of optimism, with valuations that already embed strong expectations for growth and execution. At the same time, the supply of publicly available shares is initially limited, with insiders and early investors typically subject to lockup periods. It creates a dynamic where demand outstrips supply in the early days, but where additional shares gradually enter the market over time, often putting pressure on prices. These dueling forces layer into the nuance of the business, limited public market operating history and prevailing macro forces, it becomes clear why early price discovery can be both volatile and uneven.

Forward Returns and Maximum First-Year Drawdowns for Largest U.S. IPOs (2000 – 2024)

	1 Week	1 Month	3 Months	6 Months	12 Months	Year 1 Max Drawdown
Visa	13%	22%	49%	23%	-7%	-52%
General Motors	-2%	-0.6%	7%	-8%	-37%	-49%
Facebook	-17%	-18%	-45%	-42%	-31%	-54%
Rivian Automotive	45%	15%	-36%	-77%	-67%	-88%
AT&T Wireless	-4%	-17%	-10%	-30%	-36%	-52%
Kraft Foods	-3%	-2%	5%	4%	40%	-10%
Uber	1%	3%	-4%	-34%	-21%	-68%
CIT Group	4%	-5%	-22%	-8%	13%	-41%
Blackstone	-17%	-25%	-28%	-32%	-48%	-59%
Coupang	-11%	-7%	-23%	-36%	-65%	-65%
Median	-3%	-4%	-16%	-31%	-34%	-53%
Average	1%	-3%	-11%	-24%	-26%	-54%

Source: Bloomberg Finance L.P. (Price data covers the period from 01/01/2000 through 12/31/2024 to capture full 12-month return and drawdown data. IPO data includes U.S. companies only and excludes closed-end funds, REITs, SPACs, and other special purpose entities)

The Broad Market Impact From IPOs

How will SpaceX, Anthropic, OpenAI anticipated IPOs impact market indexes?

Each index provider has its own rules for when and how newly public companies are added. Historically, most required a seasoning period after an IPO before a company becomes eligible. However, the scale of currently proposed listings appears to be prompting providers to revisit long-standing criteria.

There are a few important points to keep in mind:

While pending IPOs (SpaceX, OpenAI, Anthropic, etc.) are expected to set a new highwater mark on valuation, the actual number of shares listed on the exchange (also known as the float) is anticipated to be in the single-digit percentages of total ownership. Many initial holders of the publicly traded shares will also be subject to a 6-month lock-up period.
IPO shares are expected to be included in most major U.S. equity indexes within 5 to 15 days post-IPO, with the exception of the S&P and MSCI indexes (though timing and inclusion are subject to change).
- Given the small float initially available, weightings for names are expected to be less than 0.30% each, if not smaller.
- Most passive providers (e.g. Vanguard, State Street, Blackrock) are expected to follow the lead of the index providers to include positions within their products and at what weight.

Index Inclusion Timelines by Major Provider

Index Provider	Index	Inclusion Timing	Initial Weight (est.)	Notes
NASDAQ	Nasdaq Composite	Near-immediate after listing	SpaceX ~0.3-0.6%	Broad universe; minimal gating requirements.
NASDAQ	Nasdaq-100	~15 trading days (fast entry effective May 2026)	SpaceX ~0.2-0.4%	Low-float names weight-capped; scale up as float increases.
FTSE Russell	Russell 1000	~5 trading days (Fast entry finalized May 2026)	SpaceX ~0.1-0.2%	Fast Entry for top-500 sized IPOs; float/vote flexibility during lockups.
S&P Dow Jones	S&P 500	Standard 12 months post-IPO. No fast entry.	SpaceX ~0.08-0.15%	SpaceX will remain subject to the same admission standards as other companies seeking entry into the S&P 500.
CRSP (Morningstar)	U.S. Large Cap / Total Market	~5 trading days (Existing fast-track; float test eased Apr 2026)	SpaceX ~0.1-0.2%	Alternate float-adjusted market cap test enables low-float entry.

What to Know About Accessing IPOs

How can clients participate in upcoming IPOs such as SpaceX, OpenAI, and Anthropic?

Access depends on the custodian and the specific offering. IPO allocations typically flow through a tiered structure:

Lead underwriters: Lead underwriters and investment banking partners will often receive the largest segment of allocations.
Syndicate members: Co-managers and syndicate members receive smaller portions to distribute to their clients.
Custodial platforms: Custodial platforms may participate if they are included as part of the distribution for a specific deal.

Ability to access will depend on demand and supply. For high-profile IPOs, demand tends to exceed supply therefore allocations are often scaled back leaving investors with meaningfully smaller positions than what they request. For those that do not gain access to shares during the IPO, they can simply purchase the shares after it goes public.

How do Pershing, Schwab, and Fidelity Intend to handle the SpaceX IPO access?

IPO participation may not be appropriate for all investors and should be evaluated on a case-by-case basis within client portfolios. We are actively working with each of our primary custodians to assess what access may be available. Clients will need to provide their written authorization for participation using a prescribed script.

Custodian	SpaceX IPO
Schwab	Has indicated they expect to receive an allocation for SpaceX. We anticipate the ability to submit indications of interest for clients who wish to participate.
Fidelity	Has indicated they expect to receive an allocation for SpaceX. We anticipate the ability to submit indications of interest for clients who wish to participate.
Pershing	Does not participate in IPOs. Clients interested in participating would need to open accounts at another custodian.

Are There Any Potential Benefits to Buying an IPO?

There are reasons IPOs attract investor attention, but the risks are notable and worth understanding clearly.

Potential benefits

Early access to companies with strong growth narratives or market leadership in emerging industries
The possibility of price appreciation if the company executes well and the market assigns a higher valuation over time

Key risks

Early trading is often volatile, and elevated expectations can make the initial risk/reward profile less attractive
Many newly public companies are not yet profitable. For example, the combined SpaceX and xAI entity generated losses of $4.94 billion last year on revenue of $18.67 billion (Source: Morningstar, Securities Filings as of 05/02/2026)
Valuations at IPO often reflect a significant premium relative to peers, implying a high level of embedded optimism that may or may not be justified
Allocation uncertainty is common. Even when retail platforms participate, demand for high-profile IPOs far exceeds supply, and investors typically receive only a fraction of what they request

Conclusion

Bringing this together, the tension around IPO investing is evident. Underlying companies can be attractive, and in many cases, they go on to play an important role in markets, portfolios and the economy. But the IPO itself, meaning simply the moment when shares first become publicly available, is rarely the most favorable point of entry.

As investors, this context creates an opportunity to reframe the conversation. Rather than focusing on access to a specific transaction we should frame it as if, when, and how we choose to gain exposure to the underlying business. In many cases, a measured approach which allows the company to transition into the public markets, for liquidity to improve, and for valuation to adjust, can lead to a less volatile path to ownership. In that sense, IPOs become less about missing an opportunity, and instead about understanding the timing of when an opportunity naturally transitions into a portfolio without creating a negative drag.

Home Purchase Liquidity Engineering for Law Firm Partners

Eric Dostal, J.D., CFP® — Thu, 16 Apr 2026 09:00:00 GMT

Buying a personal residence for $8 million or more is not primarily a real estate decision. It’s a balance sheet event that touches on portfolio construction, tax positioning, credit strategy, entity design, and estate planning simultaneously. For law firm partners, whose income tends to arrive on a less than predictable schedule, the capital required to close on a high-end home must be sourced from a liquidity system that is already under structural strain.

A home purchase at this level is qualitatively different from a $2 million or $4 million transaction. Most mainstream jumbo lenders cap loan amounts between $2 million and $5 million. Financing above $5 million typically requires a portfolio lender or private bank willing to underwrite based on total asset strength rather than standard income-to-debt ratios. At $8 million, buyers should expect:

Down payment requirements of 25–30%, or $2 million to $2.4 million in cash
Credit score requirements of 740+ for best terms
Liquid reserves of 12–18 months of PITIA (principal, interest, taxes, insurance, assessments) post-close
Jumbo mortgage rates currently averaging ~6.25% on a 30-year fixed basis

For a partner whose annual spendable cash after taxes, capital contributions, and firm obligations may be $2.6 million to $2.8 million on a $6.2 million allocation, assembling a $2 million-plus down payment while maintaining adequate reserves is a material planning event.

At the $8 million price point, one-time acquisition costs accumulate quickly. In New York City, for example:

The Mansion Tax alone, at 2.25% for purchases between $5 million and $10 million, represents $180,000 in non-negotiable buyer closing costs. Outside of New York City, similar transfer taxes apply in jurisdictions like Connecticut (approximately 2.25% on sales above $2.5 million) and other high-value markets. Total buyer-side closing costs on an $8 million NYC purchase can easily approach $300,000 or more. These costs must be funded alongside the down payment, meaning the total capital required at closing isn’t $2 million; it’s closer to $2.3 million or more.

If the down payment is funded partly through the sale of appreciated securities, the tax cost must be modeled precisely. A partner selling $2 million in appreciated stock with a cost basis of $800,000 faces:

Federal long-term capital gains tax (20%): $240,000
Net Investment Income Tax (3.8%): $45,600
State and local capital gains tax (varies by jurisdiction, potentially 8–12%+): $96,000–$144,000

The total tax cost of liquidating $2 million in securities could approach $380,000–$430,000, meaning the partner may need to sell well over $2 million to net $2 million for the down payment.

Tax-loss harvesting, lot-specific identification, and the timing of sales across calendar years (particularly if income fluctuates) are all levers that a coordinated advisory team should evaluate before any shares are sold. But even when the liquidity plan has been identified, the carrying cost calculation remains. The mortgage interest deduction is permanently capped at $750,000 of acquisition indebtedness under the One Big Beautiful Bill Act “OBBBA,” which made the 2017 TCJA limitation permanent. On a $6 million mortgage (after a $2 million down payment), only a fraction of the interest is deductible. At 6.25%, annual interest of approximately $375,000 would accrue, but only the interest attributable to the first $750,000 of principal (roughly $47,000) would qualify for the federal deduction.

The SALT deduction cap, increased to $40,000 for 2025 via the OBBBA (and $40,400 for 2026), phases down for filers with MAGI above $500,000 in 2025 and $505,000 in 2026, with the cap hitting a floor of $10,000 for incomes at approximately $600,000 in 2025 and $606,333 in 2026 or higher. For a law firm partner with multi-million-dollar income, the effective SALT deduction will almost certainly be limited to $10,000, meaning the property tax on an $8 million home (which can easily run $80,000 to $150,000+ annually depending on jurisdiction) produces virtually no federal tax benefit.

The combined effect is that a significant portion of the carrying cost of a high-end home is borne entirely out of after-tax dollars, with minimal federal deduction offset. This is a meaningful shift from pre-2018 planning assumptions and must be incorporated into the liquidity model from the outset.

For a partner contemplating an $8 million home, the central design question is: How should the purchase price be funded across cash, credit, and portfolio resources in a way that preserves long-term flexibility? Even buyers with sufficient liquid assets to pay all cash, financing at this level is often a deliberate wealth management decision rather than a necessity. The calculus involves several competing considerations.

In favor of maximizing leverage:

Preserves invested capital that may compound at rates exceeding the after-tax cost of borrowing
Avoids triggering capital gains and the 3.8% Net Investment Income Tax (NIIT) on liquidating appreciated positions to fund the purchase
Maintains portfolio diversification and avoids concentrating net worth further into illiquid personal real estate
Retains securities as collateral for future credit flexibility

In favor of a larger down payment or all-cash purchase:

Eliminates or reduces interest expense that is largely non-deductible above the $750,000 acquisition debt threshold
Removes the need for extensive lender underwriting and documentation, which can be complex for partnership income
Avoids ongoing debt service that competes with quarterly estimated tax payments, firm obligations, and living expenses
Strengthens the purchase offer in competitive markets

For most partner households, the optimal answer is rarely all-cash or maximum leverage. Typically, a down payment in the 30–40% range funded from a combination of cash reserves and, in some cases, a securities-based line of credit (SBLOC), paired with a private bank mortgage structured for the specific household’s cash flow profile.

An SBLOC can serve as a powerful tool in the closing process. By borrowing against a taxable investment portfolio, a partner can fund a portion of the down payment or closing costs without liquidating appreciated securities, avoiding federal capital gains of up to 20% plus the 3.8% NIIT, which would otherwise apply at the income levels typical of equity partners. The SBLOC draw itself is not a taxable event. The partner can then repay the line over time using firm distributions, bonus tranches, or proceeds from subsequent, tax-optimized asset sales. However, the risks of SBLOCs are real and must be modeled explicitly:

Market risk: A significant decline in collateral value (30%+) can trigger margin calls or force liquidation at the worst possible time. Sizing the SBLOC conservatively, typically below 40% of eligible collateral, is prudent.
Interest rate exposure: SBLOC rates are typically variable, tied to SOFR or the Federal Funds rate, meaning carrying costs can increase materially if rates rise.
Interaction with the home mortgage: The SBLOC balance competes for the same liquidity that services the mortgage, property taxes, and estimated tax payments. The repayment timeline must be mapped against the distribution schedule.

An SBLOC should be structured with a defined repayment plan, not treated as permanent financing. Its value is in bridging the timing gap between what the closing requires and when cash arrives from the firm.

At the $8 million purchase level, private bank mortgage products offer structures that standard lenders do not. These may include:

Interest-only periods of 5–10 years, reducing initial monthly outlays and preserving cash flow for tax obligations and portfolio reinvestment
Asset-based underwriting that evaluates the borrower’s total portfolio rather than solely W-2 income or partnership K-1 distributions
Flexible terms for borrowers with complex income structures, including the irregular distribution patterns common to partnerships
Cross-collateralization options that combine the mortgage with other private banking relationships, potentially improving rate terms

Interest-only mortgages are particularly relevant for partners in their peak earning years. The lower initial payment creates breathing room for quarterly estimated taxes and firm capital calls, while the partner retains the option to accelerate principal payments when distributions exceed projections.

For partners with a home valued at $8 million or more, holding the property in a properly structured LLC can help limit personal exposure by keeping the owner’s name out of easily searchable public records, an increasingly important consideration as high-profile individuals have been targeted through basic property record searches. LLC ownership can offer several additional advantages beyond privacy:

Liability insulation: An LLC separates the property from the partner’s other personal assets, potentially limiting exposure from claims arising on the premises. This protection is strongest in multi-member LLC structures; single-member LLCs treated as disregarded entities offer weaker protection in many jurisdictions.
Fractional transfer capability: Rather than an all-or-nothing decision to keep or sell, LLC membership interests can be gifted, sold, or transferred to trusts in increments. This is particularly valuable for multigenerational planning.
Valuation discount planning: Minority interests in real estate LLCs may qualify for lack-of-marketability and lack-of-control discounts, typically ranging from roughly 10–40% when supported by qualified appraisals. This can reduce the gift or estate tax cost of transferring interests to the next generation.

In jurisdictions like Florida, holding a primary residence in an LLC may forfeit the homestead property tax exemption. The LLC must be properly maintained, with separate accounts, operating agreements, and compliance with state requirements, to sustain any applicable liability protection.

Combining LLC ownership with a grantor trust strategy creates a layered structure that can shift long-term appreciation outside the taxable estate while preserving day-to-day control and income tax integration. Following the purchase of the residence, a partner sells LLC membership interests to an intentionally defective grantor trust (IDGT) in exchange for a promissory note. Because the trust is a grantor trust for income tax purposes, the sale is not a taxable event. The note creates a defined cash flow stream back to the partner, and all future appreciation on the property accrues inside the trust, outside the partner’s taxable estate. The real power of this approach lies in how the LLC operating agreement and the sale terms are designed to keep the economic burden, mortgage, maintenance, property taxes, and insurance in the partner’s hands while allowing the trust to accumulate the property’s appreciation largely unencumbered. There are several mechanisms that make this work:

Retained managing member role: The LLC operating agreement can designate the partner as the managing member with full authority over property operations, maintenance, repairs, capital improvements, insurance, and mortgage management, even after majority membership interests have been sold to the IDGT. This preserves day-to-day control without requiring the trust to manage the property or fund ongoing costs.
Expense allocation through the operating agreement: The operating agreement can allocate operating expenses, property taxes, insurance premiums, maintenance, and mortgage payments, disproportionately to the managing member rather than pro rata across all members. This means the trust's economic interest is insulated from the carrying costs, allowing the trust's share of the property's value to compound without being drawn down by ongoing obligations.
Mortgage retention by the partner: The partner can retain personal responsibility for the mortgage on the property. Because the IDGT is a grantor trust, the transfer of encumbered LLC interests does not trigger a taxable gain event, there is no deemed disposition when the borrower and the trust are the same person for income tax purposes. The partner continues servicing the debt, which further reduces the partner's taxable estate (each mortgage payment is effectively a transfer of value) while protecting the trust from leverage risk.
Grantor's income tax payments as a tax-free wealth transfer: Because the partner continues to pay the income taxes on all trust activity, including any rental income, if applicable, or gain on eventual disposition, the trust assets grow free of income tax drag. The IRS has confirmed that these tax payments by the grantor are not treated as additional gifts, making this one of the most efficient wealth transfer mechanisms available.
Note structure that favors trust accumulation: The installment note can be structured as interest-only for the majority of its term, with a balloon payment at maturity. At the current Applicable Federal Rate (AFR), the required interest payments from the trust to the partner are modest relative to the property's expected appreciation. The lower the note payments, the more value accumulates inside the trust for beneficiaries. The partner can also coordinate note payments to replenish specific liquidity tiers, aligning them with the distribution schedule from the firm rather than competing for the same cash flow.

The net effect is a structure in which the partner retains practical control and bears the cost of ownership, while the trust captures the lion’s share of long-term appreciation without the friction of taxes or carrying costs. For an $8 million residence in a market appreciating at 3–4% annually, the value shifting to the trust can be substantial over a 10- to 15-year+ horizon.

The purchase of an $8 million home sits at the intersection of five distinct planning disciplines:

Income and cash flow modeling: Mapping the partner’s allocation, distribution history, and firm-specific practices to project actual spendable cash across multiple years
Portfolio construction and liquidity design: Structuring the investment portfolio so that the down payment, ongoing carrying costs, and contingency reserves are sourced without distorting long-term allocation targets
Tax-aware capital sourcing: Determining the most efficient combination of cash, credit, and asset sales to fund the purchase, minimizing capital gains, NIIT, and the ongoing carrying cost of non-deductible interest
Estate and entity coordination: Evaluating whether LLC structures, grantor trusts, or other structures should be established before or concurrent with the purchase, and how title should be held from day one to avoid costly restructuring later
Credit capacity and risk management: Sizing mortgage and SBLOC commitments conservatively, with defined repayment plans and stress-tested collateral coverage

When these five disciplines are addressed independently (a mortgage broker here, a CPA there, an estate attorney later), the result is often a serviceable but fragile structure. When they are modeled as an integrated system, the purchase becomes a deliberate extension of the partner’s broader financial architecture – aligned with how partnership economics work, resilient under stress, and positioned for the long term.

At Wealthspire, this is precisely how we approach these decisions. As an independent fiduciary advisory firm compensated on assets under management rather than product distribution, our role is to coordinate across all five dimensions, building the models, stress-testing the assumptions, and working alongside the partner’s CPA and outside counsel to ensure that an $8 million home purchase strengthens the balance sheet rather than straining it. Planning a home purchase or other major liquidity event? Stress-test your liquidity, taxes, and credit strategy by contacting us.

How the New Trump Accounts for Children Work: What Families Should Know Before Funding One

Eric Dostal, J.D., CFP® — Mon, 30 Mar 2026 09:00:00 GMT

The One Big Beautiful Bill Act (OBBBA) created a new tax-advantaged savings vehicle for children known as a Trump Account (TA). Since the legislation passed, several clients have asked whether they should open one for their children or grandchildren. The short answer: the mechanics are straightforward, but the harder question is whether these accounts improve tools families already have.

Below is a breakdown of how Trump Accounts work, how they're taxed, and where they may, or may not, fit into a broader wealth strategy. For a summary of the Invest America Act and an introduction to Trump Accounts, click here.

The $1,000 Head Start

If your child is a U.S. citizen born between 2025 and 2028, you can open a Trump Account and receive a one-time $1,000 contribution from the federal government. All children under age 18 with a Social Security number are eligible to open a TA, even if they don’t qualify for the $1,000 seed. To establish the account, you’ll either:

File Form 4547, “Trump Account Election(s),” with your 2025 federal return, or
File the form separately via an online IRS portal expected to launch later this year.

The government’s one-time $1,000 contribution does not count toward the annual contribution limit. For families who qualify, the seed contribution is a straightforward government subsidy.

Contribution Rules

Beginning July 4, 2026, parents, grandparents, or other individuals may contribute up to a combined $5,000 per year per child to an established TA for that child’s benefit. The $5,000 limit will be indexed for inflation starting in 2028. Contributions can continue through the year in which the child turns 18.

Example:
If your grandson is born in 2026 and qualifies for the government contribution, his account could receive $1,000 (government contribution) plus $5,000 (family contributions) for a total of $6,000 in his first year. You could contribute another $5,000 in 2027. In 2028, the cap adjusts for inflation, and contributions may continue through 2044, the year he turns 18.

Employer and Institutional Contributions

OBBBA also opens the door to additional funding sources. After July 4, 2026, employers may contribute up to $2,500 annually to a TA on behalf of an employee under age 18 or an employee’s under-age-18 dependent. These contributions are deductible by the employer, excluded from the employee’s income, and count toward the child’s $5,000 annual cap.

State and local governments, tribal governments, and certain nonprofit organizations may also contribute under rules that are still being developed by the IRS. These “qualified general contributions” must apply to a defined group of children and do not count toward the $5,000 annual limit. For example, the Michael & Susan Dell Foundation has pledged to seed TAs with $250 for children aged 10 and under who live in ZIP codes where the median household income is less than $150,000.

Investment Restrictions Before Age 18

Until the year the child turns 18, Trump Accounts can only invest in mutual funds or ETFs that:

Track a qualified U.S.-based index
Do not use leverage
Charge fees no higher than 0.10%
Meet additional IRS criteria

In practice, this means the accounts are limited to low-cost passive index funds. From an investment perspective, that structure is sensible. It reinforces a principle we emphasize with clients – long-term compounding tends to be driven more by cost discipline and diversification than by tactical investment selection.

What happens at age 18?

In the year the child turns 18, the TA automatically converts into a traditional IRA and becomes subject to normal IRA rules. That means:

Additional contributions require earned income
Contributions may be deductible depending on income levels
Withdrawals are taxed as ordinary income
Early distribution penalties may apply before age 59 ½

Whatever tax advantages exist during the early years ultimately funnel into the traditional IRA system, which should ultimately shape any discussion about whether TAs for your children make sense within the broader context of your planning goals.

The Long-Term Compounding Story

To illustrate the potential, assume:

$1,000 initial government contribution
$5,000 annual contributions for 17 years, with a 2.5% annual inflation adjustment beginning in 2028
6% annual investment return

Under those assumptions, the account could reach roughly $198,000 by age 18, after approximately $112,000 in total contributions. If no additional contributions were made and the funds stayed invested at the same return until age 65, the balance could grow to approximately $3.26 million. A tale as old as time.

However, inflation matters. At a long-term inflation rate of 2.5% per annum, that $3.26 million would have the purchasing power closer to $650,000 in today’s dollars.

So, there are two main takeaways: 1) starting early meaningfully increases the impact of compounding, and 2) inflation steadily erodes future purchasing power, which is why saving needs to continue well beyond childhood. But compounding alone doesn’t determine whether this is the most efficient strategy. Tax structure matters just as much as growth.

The Tax Question: Ordinary Income vs. Capital Gains

Inside a Trump Account, investment growth is tax-deferred. Once the account converts to a traditional IRA, withdrawals are taxed as ordinary income, not long-term capital gains.

Using the same projections, if the account grows to approximately $3.26 million by age 65 and the full balance is withdrawn, the entire distribution would generally be taxed as ordinary income, less the original direct contribution amounts. At a combined federal and state marginal rate of 35–40%, the after-tax value could fall to roughly $1.95–$2.10 million.

Now, let’s consider the alternative. If the same dollars had been invested in a taxable brokerage account using a low-turnover index ETF and held for the same period, most of the gain would likely qualify for long-term capital gains treatment. At a combined rate of around 23–25%, the after-tax value could remain closer to $2.40–$2.50 million.

This simplified comparison ignores tax drag from dividends along the way, but it highlights the structural question: Does converting potential capital gains into future ordinary income improve the outcome? For many high-income households, the answer is likely no.

Flexibility Matters, Too

Tax rates are only part of the equation. Funds in taxable brokerage accounts, custodial or UTMA structures, or certain trust arrangements can be accessed at any time, without the early distribution penalties that come with retirement accounts. That flexibility matters over a multi-decade horizon. Life rarely follows a clean retirement timeline. Young adults may want capital to:

Start a business
Purchase a home
Fund a major relocation
Cover early-career expenses

Traditional IRA rules generally impose a 10% early withdrawal penalty on top of ordinary income taxes before age 59 ½, with limited exceptions. Assets in taxable or custodial structures can be deployed whenever the need arises. For that reason, the decision to fund a Trump Account shouldn’t be evaluated in isolation. It should be weighed against the vehicles that families already use: UTMA accounts, 529 plans, and trust-based gifting strategies. Each with different trade-offs among tax efficiency, control, and flexibility.

The Potential Impact of Roth Conversions

Roth conversions could significantly influence account strategies. Once the account becomes a traditional IRA at age 18, one potential strategy is to convert some or all the balance to a Roth IRA during years when the beneficiary’s income is relatively low. If done in a low bracket, the conversion tax could be minimal, and the funds would then grow tax-free for life.

There are complications, however. Income for minors and dependent students may be taxed at their parents’ marginal rate under the “kiddie tax,” which limits conversion flexibility before the child is fully tax-independent. For many young adults, the most attractive Roth conversion window may be relatively narrow: after they’re financially independent but before their income rises substantially.

It remains unclear how the IRS will treat Roth conversions from former Trump Accounts, and additional guidance is expected. If conversions are clearly permitted, the long-term case for Trump Accounts improves meaningfully, but until then, this planning opportunity remains somewhat theoretical.

How does this compare to a 529 Plan?

If the primary goal is education funding, a 529 plan is usually more efficient, as 529 plans offer:

Tax-free growth for qualified education expenses
The ability to roll unused balances to a Roth IRA (within limits)
Potential state income tax deductions for contributions

Trump Accounts offer more flexibility in how funds can ultimately be used, but they sacrifice the tax-free treatment that make 529 plans a powerful tool for education planning. For most families, the choice comes down to aligning the account with the intended purpose of the savings.

The Gift and GST Tax Uncertainty

One major issue that remains unresolved is how contributions to Trump Accounts will be treated for federal gift and generation-skipping transfer (GST) tax purposes.

In January 2026, the American College of Trust and Estate Counsel (ACTEC) submitted formal comments to the IRS in response to Notice 2025-68. Their concern is that the statute creating Trump Accounts does not clearly state that contributions qualify for the annual gift tax exclusion that is typically used when funding other pre-existing vehicles like UTMAs, Trusts, or 529s. Without clarification, contributions could technically be treated as gifts of a future interest rather than a present interest. If that interpretation prevails:

Contributions would not qualify for the annual gift tax exclusion
Donors would need to file a federal gift tax return
Lifetime exemption would need to be applied
GST exemption may also need to be allocated if the beneficiary is a skip person

For most families contributing $5,000 annually, this would not create an actual tax liability. However, it introduces administrative complexity that does not exist with other planning tools. A technical correction from Congress or regulatory clarification from Treasury would likely resolve this issue. As of this writing, proposed regulations are expected but have not yet been finalized.

Where Wealthspire Fits

At Wealthspire, we approach decisions like this through the broader context of a family’s financial plan. No single account should be evaluated on its own. The more important question is how it interacts with the rest of the balance sheet.

Trump Accounts introduce an interesting concept of encouraging retirement savings before adulthood. But whether they represent a meaningful planning improvement is less clear. For many families, existing tools already accomplish similar goals with simpler tax treatment, and TAs could be a solution searching for a problem. With that said, the structure is still new and additional IRS guidance may clarify planning opportunities, particularly around Roth conversions.

As with most planning questions, the right answer depends on how the account fits within your overall financial strategy. If you would like to evaluate whether a Trump Account makes sense for your family, we would be happy to walk through the tax implications and compare it against the alternatives already available to you.

From Dubai to What Comes Next? The New Geography of Global Wealth

Joshua Shoshan, CFP®, APMA™, CEPA — Mon, 23 Mar 2026 09:00:00 GMT

Periods of geopolitical stress have a way of clarifying what markets truly value.

The current conflict involving Iran—and its direct and indirect implications for Gulf security—has introduced a new and more immediate layer of uncertainty across the region. While the situation remains fluid, its effects are already being felt where it matters most: in the perception of risk among globally mobile capital.

For Dubai, this moment is particularly significant. Over the past decade, the emirate has established itself as one of the world’s most dynamic financial centers, attracting capital from across Europe, Asia, Russia, and the broader Middle East. Its rise has been built on a powerful combination of low taxes, business-friendly regulation, and a strategic position bridging major economic regions. Equally important, however, has been something less tangible: the perception that Dubai offered not only efficiency, but relative insulation from the instability that has historically affected the broader region. That perception is now being tested. Financial centers are not built on efficiency alone; they’re built on confidence. And confidence, once questioned, does not erode gradually. It reprices.

When Stability Becomes the Asset

Recent developments tied to the conflict involving Iran have prompted a subtle but meaningful reassessment among globally mobile investors. Importantly, capital does not wait for outcomes. It responds to probabilities. Even the perception of increased risk—whether or not it ultimately materializes—can influence allocation decisions. In the case of Dubai, its long-standing appeal has rested not only on economic advantages, but on a perception of relative insulation from regional instability. If that perception begins to shift, even slightly, it introduces a new variable into the decision-making process: proximity to geopolitical risk.

This does not suggest that Dubai ceases to function as a financial center. On the contrary, its infrastructure, regulatory ecosystem, and global connectivity remain formidable. However, it does suggest that capital may begin to demand a higher threshold of certainty before committing to the jurisdiction. In this sense, the question is not whether Dubai declines, but whether it’s being repriced.

The Repricing of Financial Centers

History consistently reminds us that global wealth does not disappear in times of uncertainty; it reallocates. And when it does, the criteria shift in predictable ways:

From efficiency to security
From tax optimization to rule of law
From access to resilience

This reallocation is rarely abrupt, but it can accelerate quickly once it begins. In today’s environment, characterized by instantaneous information flow and increasingly sophisticated capital, perceptions adjust faster than ever. Financial centers, therefore, are not static. They are continuously evaluated against a changing set of priorities. When those priorities evolve, so too does the geography of capital. In periods of geopolitical stress—particularly those centered on energy markets and key transit regions—this repricing can be even more pronounced. Capital becomes more sensitive not only to policy and taxation, but to geography itself.

Where Capital Is Moving

As global investors reassess jurisdictional risk, capital is not flowing in a single direction. Instead, it is dispersing across a small group of destinations that offer varying combinations of stability, legal protection, and financial sophistication. Several jurisdictions consistently appear in that conversation:

Singapore — a leading hub in Asia defined by political stability and regulatory discipline
Switzerland — long associated with wealth preservation and private banking expertise
United Kingdom — anchored by London’s global legal and financial infrastructure
Cayman Islands — a key jurisdiction for structuring and capital pooling
United States — offering unmatched market depth, legal certainty, and institutional scale

Each of these plays a role. Each attracts capital for specific reasons. But one stands apart—not merely as a destination for capital, but as the jurisdiction to which capital ultimately anchors when stability becomes the overriding objective.

Singapore: The Expected Beneficiary

Singapore is often the first jurisdiction cited in discussions of capital rotation, and for good reason. Its appeal is clear:

Strong rule of law
Political neutrality
Consistent regulatory framework

Singapore has demonstrated an ability not only to attract capital, but to retain it across cycles. In an uncertain world, that consistency matters. But while Singapore represents a logical destination, particularly for capital originating in Asia, it’s not the full story.

The United States: The Underappreciated Anchor

More quietly, and perhaps more significantly, the U.S. continues to consolidate its position as the central pillar of global capital. What distinguishes the United States is not any single advantage, but the combination of several that, together, are difficult to replicate:

Unmatched capital markets — depth, liquidity, and breadth across every asset class
Legal certainty — a system grounded in enforceable property rights and contractual clarity
Currency dominance — the enduring role of the U.S. dollar in global trade and finance
Institutional scale — a financial, legal, and regulatory ecosystem that operates at a level no other jurisdiction approaches

Historically, the U.S. has not been framed as a “safe haven” in the same way as traditional offshore jurisdictions. In many cases, it was viewed as complex, highly regulated, and, for foreign investors, potentially tax-inefficient. But that framing is beginning to change, particularly in moments like the present when geopolitical risk is no longer abstract but immediate.

In an environment shaped by conflict risk and regional uncertainty, the relative strengths of the United States become more pronounced. Complexity, in this context, is increasingly viewed not as a deterrent, but as a byproduct of a system designed to protect capital. This distinction matters because as capital rotates toward the United States, the conversation shifts from simple allocation to strategic positioning.

From Destination to Structure

For international investors, allocating to the United States is not merely an investment decision. It is a structural one. Without proper planning, exposure to U.S. estate taxes, reporting requirements, and cross-border complexities can create unintended consequences. With proper structuring, however, those same factors can be managed—often efficiently and predictably.

This is where planning becomes central. Structures such as drop-off trusts (also see our earlier blog, “Navigating U.S. Investment: A Tax Guide for Non-Resident Aliens”), when thoughtfully designed, can allow non-U.S. investors to access U.S. markets while mitigating estate tax exposure and preserving flexibility. More broadly, they represent a shift in how global wealth is managed: not simply moving capital to safer jurisdictions but embedding it within those jurisdictions in a way that aligns with long-term objectives.

A Broader Rebalancing

It would be overly simplistic to frame the current moment as the decline of one financial center and the rise of another. The reality is more nuanced. Dubai may remain an important and dynamic hub, particularly for regional capital and for investors prioritizing flexibility and access. Singapore continues to strengthen its position as a model of stability in Asia. The United States, meanwhile, is increasingly recognized as a foundational anchor for global wealth.

What is unfolding is not a displacement, but a rebalancing—one that is being accelerated, not created, by current geopolitical tensions. Capital is diversifying not only across asset classes, but across jurisdictions, seeking a combination of opportunity, protection, and resilience.

Closing Thought

Financial centers do not lose relevance overnight. They are gradually repriced—sometimes quietly, sometimes all at once. What matters is not predicting the exact inflection point, but understanding the direction of travel. Today, that direction is becoming clearer.

In a world where geopolitical risk has moved from background concern to active variable, stability is no longer assumed. It is sought, evaluated, and, increasingly, prioritized above all else. And for global investors, that shift may prove to be one of the defining themes of the decade.

A Final Consideration

For investors navigating this evolving landscape, the implications are both strategic and structural. Allocating capital across jurisdictions is no longer simply a question of opportunity, but of alignment between legal frameworks, tax regimes, and long-term objectives.

This is particularly true as the United States assumes a more prominent role in global wealth preservation. Accessing its markets and protections effectively requires thoughtful planning, especially for non-U.S. investors facing cross-border complexities.

At Wealthspire, we operate at the intersection of investment strategy and advanced planning. The ability to integrate jurisdictional diversification with structures designed for tax efficiency and asset protection is no longer a niche capability; it is becoming a core requirement. In that sense, the changing geography of global wealth is not only about where capital goes next but about how deliberately it gets there.

Charitable Giving for the High-Net-Worth Individual

Craig Fasano, J.D. — Tue, 17 Mar 2026 09:00:00 GMT

Charitable giving is an important part of life for many clients. Whether donating money or property, dedicating time and effort, or a combination thereof, giving is a way to promote values and leave a legacy for future generations. Charitable giving can also be a valuable part of the overall financial plan, and understanding some basic ways to give can add significant economic efficiency to benefit the donor and their family for the long-term.

The 2017 Tax Cuts and Jobs Act (“TCJA”) and the 2025 One Big Beautiful Bill Act (“OBBBA”) have changed and refined deduction rules heavily. While the TCJA increased the standard deduction, it also reduced permissible itemized deductions. The OBBBA then made further refinements to those itemized deduction limitations. Here’s a summary of pertinent changes under these acts:

2017 TCJA – Taxpayers can claim itemized deductions for only a handful of items – medical and dental expenses that exceed 7.5% of AGI (adjusted gross income or taxable income), mortgage interest (subject to a principal limitation of $750,000 for new mortgages taken after December 2017), state and local taxes paid (capped at $10,000), and charitable gifts.
2025 OBBBA – Among other changes, the OBBBA modified the SALT and charitable deduction rules as follows:
- SALT deduction is up to $40,000 for tax years 2025 to 2029 (with annual inflation adjustments) for single and joint filing taxpayers with modified adjusted gross income (MAGI, which is income from all sources) below $500,000. There is a phase-out of the higher SALT deduction for those with MAGI between $500,000 and $600,000, and a full phase-down to the prior $10,000 SALT deduction limitation for those with MAGI above $600,000.
- Charitable deductions:
  - On the plus-side, there is now an ‘above-the-line’ deduction for cash gifts to public charities of up to $1,000 for single filers and $2,000 for joint filers. This deduction can be taken whether you itemize or take the standard deduction. To be deductible under this rule, donations cannot go to a donor advised fund or private foundation; they must go directly to a public charity.
  - There are also new limitations under the OBBBA:
    - For those who itemize deductions, there is a 0.5% “AGI floor,” meaning only donations above the floor are deductible.
    - For those in the 37% top federal income tax bracket (single filers >$640,601 and joint filers >$768,701), the value of the deduction is taken at the next highest tax bracket (35%) and not the top 37% bracket.

The new limitations under the OBBBA can have a meaningful impact on tax savings for charitable deductions for those with high AGIs. As an example, assume a person who itemizes their deductions has $2,000,000 of AGI and typically gives $20,000 per year to charity.

Under the former rules, the donor would receive a full $20,000 deduction at the 37% federal tax bracket which results in tax savings of $7,400 ($20,000 x 37%).
Under the new OBBBA rules, the first $10,000 (0.5% of AGI) is the deduction floor, making the deductible value $10,000, and that deduction is taken at the 35% tax bracket, resulting in tax savings of $3,500. That’s ~53% less in tax savings for making the same contribution amount as in the prior year.

Most clients new to Wealthspire have traditionally made charitable gifts by simply writing a check or donating cash. Cash donations to public 501(3)(c) charities still provide a current year income tax deduction up to 60% of adjusted gross income (now subject to the OBBBA limitations mentioned above) with a 5-year carry forward utilizing the full deduction if above the AGI limits. However, using cash is seldom the most efficient way to give. Below we will explore some of the more common and efficient ways to make charitable gifts and how to integrate these strategies into a long-term financial plan, especially given the recent changes enacted by the 2025 OBBBA.

Common Charitable Gifting Strategies

Donate Appreciated Assets

For high-net-worth taxpayers, managing capital gains adds significant tax-efficiency to the portfolio. We often utilize tax-loss harvesting when markets are volatile and strategic gain harvesting in low-income years. Stock markets have also performed very well in the last 10–15-year period, leaving many with large, unrealized capital gains in their portfolio. For the charitably inclined, using low basis, long-term capital gain positions to donate also adds tax-efficiency. Appreciated assets can be viewed as charitable currency since asset donations allow for both a current year income tax deduction at fair market value of the asset donated and avoid triggering a capital gain on the disposition of the asset. So, the stock that you bought for $10,000 and is now worth $100,000? It can be donated to charity, you will receive a charitable income tax deduction subject to the potential OBBBA limitations mentioned above, and you’ll avoid paying capital gains tax on the $90,000 of gain since the tax-exempt charity will sell the position.

Most charities can receive direct donations of securities or other appreciated assets. Donations of appreciated assets to public charities are limited to 30% of AGI with a 5-year carryforward. And, if the asset is one that you would like to continue to own, there is no preclusion from purchasing it back with cash (cash that would have otherwise been used to make the charitable gift) which will reset the cost basis to current market value. When using appreciated securities, it’s important to make sure that the asset donated is a long-term capital gain holding (i.e., it has been owned for one year or more), as short-term capital gain positions have their deduction limited to lesser of cost basis or current market value.

Use A Donor Advised Fund

What if you would like a tax deduction this year, but do not want to give all the funds to the charities you plan to support right now? The donor advised fund (DAF) provides a simple solution. A DAF is a charitable investment account that is itself a public 501(c)(3) charity. DAFs have modest initial funding requirements (Fidelity and Schwab DAFs have no initial minimums) and can be funded with cash, appreciated assets, collectibles, or other investments (real estate/illiquid investments). Funds are donated into your own designated account within the DAF that can have your name attached to it or remain anonymous.

The donation is complete and the tax deduction is received once the funds are inside the DAF. As a public charity itself, assets can be sold inside the DAF with no tax consequence. While the donation is irrevocable, the donor will have the ability to 1) direct investment of the funds, tax-free, inside their DAF account, and 2) nominate other public charities to receive grants from their DAF account. Grants are then sent out by check from the DAF to the end charity. The is no legal deadline to send funds out of a DAF; however, many DAF sponsors require at least a $50 grant to a public charity every three years.

Given the OBBBA’s limitation on itemized charitable deductions discussed above, “bunching” gifts often makes sense. This technique involves making multiple years’ worth of charitable gifts into the DAF to take a deduction in the current year and then spreading out grants to end-charities over time. Then in the following year(s), the taxpayer takes a standard deduction before again making a larger charitable donation to the DAF and itemizing deductions again in a future year.

Make Qualified Charitable Distributions from Traditional IRA Accounts

A qualified charitable distribution (QCD) is a donation from a Traditional IRA to a qualified charity. While required minimum distributions (RMDs) of Traditional IRA funds are not mandated until age 73 (75 for those born after 1960), IRS rules allow for those 70½ or older to donate up to $111,000 from their pre-tax IRA directly to public charities without taking the distribution as taxable income. Itemizing deductions is not necessary to take advantage of a QCD (so the OBBBA limitations don’t apply), and one does not have to be past their RMD age – 70½ is the magic age. If you must take an RMD, the QCD can reduce the amount that must be taken in as taxable income (e.g., a 2026 RMD is $200,000 and a $111,000 QCD is made, so the QCD skips you entirely for income tax purposes and you only take in and pay tax on $89,000). The QCD limit is per taxpayer, meaning a married couple where each has an IRA can make QCDs up to the annual limit and can be adjusted annually for inflation. One important note is that QCDs must go directly to end-charities and cannot be made to a DAF or private foundation.

Other Charitable Gifting Methods

Charitable giving can also be coupled with the donor’s desire to retain an income stream from donated assets while also supporting charity. The techniques below are more complex but can be useful for high-net-worth individuals with both philanthropic and income goals in mind.

Charitable Gift Annuity

Many larger charities offer charitable annuities which allow donors to support the organization, receive a partial charitable income tax deduction up front, and receive a fixed income stream from the charity for a single or joint life with the remainder interest reverting to the charity. A gift annuity is a contract between a donor and a single charitable organization. It can be funded with cash, property, or appreciated securities. The terms of the agreement lock in the annuity rate and amount/timing of payments back to the donor. The annuity payment is based on several factors including the donor’s age when making the initial gift. Annuitants receive an income tax deduction at the time of the original gift with the deduction based on the estimated amount that will eventually go to the charity after all the annuity payments have been made. Assuming long-term capital gain assets are gifted, the capital gains tax will be spread out for a period of time based on the donor’s statistical life expectancy as the donor receives the income payments. If the donor outlives their statistical life expectancy, income payments moving forward are taxed as ordinary income.

Charitable Remainder Trust

Like the Charitable Gift Annuity, the Charitable Remainder Trust (CRT) also provides an upfront charitable income tax deduction and tax-advantaged income stream for a period of years or life. CRTs can be created during life or as part of the estate plan after death. They can also be created directly with a charitable organization (mostly larger organizations offer CRTs) or by the donor directly, in which case multiple charities or a DAF can be named as remainder trust beneficiaries.

CRTs are often used as a low-basis stock diversification strategy since, similar to the strategies discussed above, donations to a CRT are valued at current market value, and assets are sold and diversified once inside the CRT with no current capital gain consequence. The funds are then invested in a diversified manner inside the CRT, and an annual/quarterly income stream is paid to the donor or another named beneficiary. CRTs can have fixed payments (known as a Charitable Remainder Annuity Trust (CRAT)) or varying payments that are a fixed percentage rate of the CRT value each year (known as a Charitable Remainder Unitrust (CRUT)). There is also a CRT variation typically used when immediate income is not the goal or when illiquid assets that do not generate an income stream are used for the initial funding. This is called a Net-Income Make-Up Charitable Remainder Unitrust (NIM-CRUT). Donations to a CRT provide a charitable income tax deduction for the current year. Payments made to an income beneficiary are taxed in a tiered system which typically allows for deferral of the long-term capital gains tax that would have been due upon the sale of the asset(s) used to fund the CRT.

After the end of the CRT term or death of the last income beneficiary, the remaining CRT assets are distributed to designated charitable beneficiaries. Depending on how the CRT is drafted, the trustee may be given the power to change the charitable remainder beneficiaries during the term of the trust.

There are more complexities and costs with CRTs. If you create a CRT on your own, the trust must be drafted by legal counsel. A CRT will also generate a K1 for the income beneficiary’s tax reporting. You can learn more about CRTs here.

Charitable Lead Trust

The inverse of the CRT is the Charitable Lead Trust (CLT). CLTs can have a fixed (known as a CLAT) or varying payment (known as a CLUT) and a term of years or lifetime term. They can be created during life or as part of the estate plan at death. Unlike the CRT, the CLT makes its annual payment to one or more charities and has its remainder interest either revert to the grantor, or more commonly, pass to designated beneficiaries as a longer-term discounted gift. The CLT is also a more complex strategy that requires both legal and accounting considerations. Depending on how the CLT is set up, it can also provide a large upfront income tax deduction. Learn more about CLATs here.

Beneficiary Designations / Naming Charities in Your Estate Plan

Leaving assets to charity through an estate plan should also be considered. An estate plan often lists specific charitable bequests and may designate one or more charitable organizations as the taker-in-default (e.g., who receives the estate if all other beneficiaries are deceased). While such provisions are common, naming a charity (which can also be a DAF) as contingent beneficiary for a Traditional IRA or other retirement plan may make sense for some. Under the 2022 Secure Act 2.0, Traditional IRA funds passing to a non-spousal beneficiary are given a 10-year deferral period before the total account must be distributed out, and the inherited IRA may have RMD requirements for the beneficiary over the 10-year period depending on whether the original IRA owner was past their RMD age. All distributions are taxable as ordinary income to the beneficiary. For those with a potentially taxable estate (for 2026, greater than $15,000,000 for an individual / $30,000,000 for a married couple), naming a charitable contingent beneficiary for Traditional IRA dollars will reduce the amount of the taxable estate and use a tax-inefficient asset for heirs to do so.

Create a Private Foundation

A concept that takes the DAF-concept to the next level is the private foundation. A private foundation is established by an individual, family, or corporation and can support charitable endeavors directly. Think of the DAF as a way to lend financial support to other public charities, while a foundation can do that it can also organize and run charitable events. The foundation is often used to create a legacy beyond one’s lifetime and/or allow family members to be employed or serve as members of the board, and subject to limitations, support can go to organizations other than 501(c)(3) public charities.

Gifts of cash or securities to a foundation receive a charitable income tax deduction based on fair market value. Unlike the DAF, donations of real estate or privately held stock are only deductible at cost basis, not fair market value. Private foundation deductions are also more limited as compared to those afforded gifts made to DAFs or directly to public charities – 30% of AGI for cash donations (vs. 60% for a DAF / public charities) and 20% for long-term capital gain security donations (vs. 30% for DAFs / public charities). Foundations face a modest excise tax on net income and must distribute roughly 5% of their investment assets annually with severe IRS penalties for non-compliance.

While a private foundation can be an excellent family giving vehicle that leaves a lasting legacy, the legal, accounting, and administrative cost and effort make them unattractive for most. Given the added complexity and cost, a private foundation is typically something more suitable for the ultra-high-net-worth family that wants to be very involved in their charitable endeavors and/or leave a legacy.

Conclusion

Charitable giving is an important part of the overall financial plan, not just something to think about near year-end. Wisely considered sources and methods of donations can lead to a greater impact for the charity and better tax outcomes for the donor. We are here to help you sort through the options, understand how periodic tax law changes can impact you, and ultimately help make decisions that are best for you and your family.

The New Duty of Care: Navigating AI in Purpose-Driven Portfolios

Kevin O’Connell — Tue, 03 Mar 2026 10:00:00 GMT

Content adapted from an article originally written by Kevin O’Connell, published by, and used with permission from, Fiducient Advisors LLC.

Artificial intelligence (AI) is reshaping the fiduciary role, challenging investment committees to balance innovation with mission integrity and traditional stewardship responsibilities.

Twenty years ago, the world ran on an entirely different operating system. The iPhone had not yet transformed global communication. Platforms such as YouTube hadn’t democratized media. In the not-too-distant past, Bitcoin didn’t exist and people were limited to paying for their pizza with cash or credit;¹ can you imagine that?! Today, we live in an era defined by exponential innovation, and investment stewards must navigate these shifts with clarity, discipline, and intentionality. Moreover, as this technological wave accelerates, demographic realities appear to be extending time horizons. With life expectancy already reaching upwards of 80 years in developed nations, many institutions may be forced to rethink how they steward resources meant to last across multiple generations. A changing world places new demands on what it means to oversee capital prudently and in alignment with a long-term mission.

The Paradox: More Data, Less Clarity

Modern fiduciaries face an uncomfortable reality: they have access to more financial data than ever, yet arguably with less clarity about how to act on it. This could be one of the driving factors behind the growth in outsourcing investment management services. This approach allows trustees and committee members to put greater focus on strategic initiatives and oversight, rather than sifting through reams of portfolio data and market minutiae, while also reducing the operational burden on staff members.

At the same time, nonprofit board members increasingly confront technologies they haven’t grown up with, AI models, digital assets, dynamic risk systems, and new forms of operational and reputational exposure. Investment oversight that once focused primarily on asset allocation, manager selection, and liquidity to address traditional risk/return objectives must now incorporate data privacy risks, algorithmic bias, cybersecurity, and the implications of automated decision systems. As noted in “Fiduciary Fun Facts,” fiduciary duty dates back to ancient Rome² and has faced previous challenges and forced evolution.

However, these aren’t simply technical developments; they reshape the context in which fiduciary stewardship occurs. And the speed of innovation means committees cannot rely on historical frameworks alone. Failing to incorporate responsible AI and technology considerations is no longer a passive choice, it’s an active risk.

AI’s Promise and Potential Peril

Artificial intelligence is more than just another tool; it is a structural shift affecting research, risk management, and strategic planning. AI’s greatest contribution may be transforming large, unstructured datasets into decision-ready insights, helping investment teams filter noise and detect patterns earlier and more accurately.

However, AI introduces new risks. Three-quarters of institutional investors now consider the negative externalities of data and AI technology a significant long-term investment risk.³ These concerns extend beyond market volatility to include data governance failures, harmful algorithmic impacts on society, reputational risks from controversial AI applications, and overreliance on opaque models that committees cannot easily explain.

This tension, AI’s potential versus its risks, defines the current moment and demands careful navigation. Microsoft is among several major companies at the forefront of AI development and has subsequently established its own principles and guidelines to help ensure systems remain “transparent, reliable, and worthy of trust.”⁴

A Committee’s Dilemma: The Cost of Advice in an AI Era

Consider a recent conversation with the board representing a mid-sized educational foundation. A committee member raised a pointed question, paraphrasing: “If AI can deliver real-time analysis and data-driven decisions by constantly learning and adapting while at the same time avoiding bias, fatigue, or ego, can we assume it will inevitably outperform human-managed portfolios? And if every dollar should advance our mission and AI promises precision and cost efficiency, should we question whether paying for human advice still aligns with fiduciary responsibility?”

It’s a reasonable question, and one that reflects a fundamental misinterpretation of what fiduciary responsibility actually requires. Yes, AI has advanced remarkably and offers powerful tools for efficiency and analysis. But fiduciary responsibility isn’t just about data and execution, it’s about judgment, governance, and accountability. Again, context matters: AI can process numbers brilliantly, but it doesn’t truly understand an organization’s mission (nor will it ever). It is unlikely to ever have an appreciation for the sensitivity of spending needs or drawdown tolerance with the nuance that a human advisor provides. Committees remain legally and ethically responsible for investment decisions, and a fiduciary partner helps ensure compliance, documentation, and alignment with policy, areas where algorithms cannot assume liability.

The most effective approach isn’t “AI or advisor”; it’s integrating both. Leading advisors already leverage AI-driven insights to enhance decision-making and continually seek best practices.⁵ The value lies in combining these tools with experience, strategic planning, and governance oversight tailored to each organization’s unique objectives.

Redefining Fiduciary Duty for the AI Age

As AI reshapes markets, fiduciaries must reinterpret long-standing obligations, such as duty of care, loyalty, and prudence within this new environment.

Duty of Care: Understanding Emerging Risks. Investment committees are not expected to be AI engineers, but they must understand how AI affects markets, managers, and operational risk. Committees often respond to AI risks with: “What’s the problem? What are you talking about?” This knowledge gap represents fiduciary vulnerability. Simply put, fiduciaries cannot oversee risks that they do not understand.

Duty of Loyalty: Ensuring Oversight and Accountability. As one technology leader put it: “People should be accountable for AI systems. How can we create oversight so that humans can be accountable and in control?”⁶ Accountability is not optional. Delegating decisions to opaque algorithms without governance represents a failure of fiduciary duty.

Duty of Prudence: Documented, Disciplined Decision-Making. Prudence should not suggest a burden of predicting the future; rather, it should focus on applying a structured, transparent process. AI’s increasing influence requires committees to document how they evaluate technology-driven risks, question managers using AI-based strategies, and help ensure decisions remain aligned with mission and long-term goals. Prudence in the AI era starts with better questions.

Mission Alignment in a Technology-Driven World

Nonprofits are more than investors. They are mission-driven stewards whose portfolios often aspire to reflect both financial goals and institutional values. AI adds a new dimension: evaluating how technologies influence communities, equity, fairness, and social well-being.

Mission alignment must involve evaluating the impact of emerging technologies and investing responsibly in innovation instead of simply deciding to exclude certain sectors. As one industry leader notes, “We need to bring the lens of impact and responsibility into investment decisions to help ensure focus on driving positive outcomes while managing downside risks [related to AI].”

Moreover, responsible technology governance can be a long-term competitive differentiator. Operating this way helps drive long-term success for companies and their investors. It’s not a trade-off; it’s an investment in resilience.

What Investment Committees Can Do Next

Build Literacy, Not Mastery. Committees need not become AI engineers, but they must understand AI’s implications for risk, operations, and mission alignment.

Strengthen Governance and Documentation. Investment Policy Statements should consider addressing the use of AI-influenced strategies, data privacy expectations, and model oversight requirements.

Integrate Responsible Technology Questions into Due Diligence. Committees should ask managers to document how AI-enabled processes are validated, request transparency on model training data and governance, and incorporate responsible technology questions into RFPs and manager reviews.

Embrace Transparency as a Fiduciary Requirement. Transparency bridges innovation and accountability. Committees should demand clear explanations from managers using AI-enabled systems.

Prioritize Mission Integrity. AI should enhance a mission, not compromise it. Principles emphasizing that AI systems should empower everyone and engage all people, regardless of backgrounds, provide a north star for aligning investment decisions with institutional purpose.

Stewardship in an Age of Acceleration

Technological advances are taking place faster than in any other period in modern history. AI is transforming how investment strategies are built, how risks are detected, and how global markets function. These shifts don’t diminish the importance of fiduciary duty, they elevate it. As CIO Brad Long reminded us in this year’s Outlook: “[as] stewards of capital, it is our duty to protect capital and not speculate with assets that have been placed in our care.”⁷

We believe committees that integrate responsible AI principles deepen their understanding, ask better questions, and anchor decisions in mission will be best positioned to steward capital wisely in the decades ahead. Responsible oversight does not mean slowing innovation. Instead, responsible oversight should focus on helping to ensure innovation serves people, planet, and purpose.

In this moment of transformation, the role of the fiduciary has never been more essential or more powerful. Contact us for guidance grounded in governance, accountability, and long-term mission alignment.

1 Bitcoin Pizza Day: Why Bitcoiners Are Celebrating Today By Eating Pizza
2 Fiduciary Fun Facts: From Roman Trusts to Employee Retirement Plans
3 VentureESG-Pushing-Forward-—-LP-White-Paper-Feb-2025.pdf
4 Responsible AI Principles and Approach | Microsoft AI
5 AI in Investment Management: 5 Lessons from the Front Lines – CFA Institute Enterprising Investor
6 Responsible AI Principles and Approach | Microsoft AI
7 2026 Outlook: The Discipline Dividend

Supreme Court Ruling: Tariffs Overturned

Chris Maxey, CAIA® — Fri, 20 Feb 2026 10:00:00 GMT

Tariffs Overturned: What Comes Next

In a decision closely watched by investors, the Supreme Court ruled 6 to 3 that the International Emergency Economic Powers Act ("IEEPA") does not authorize the President to impose broad tariffs. The ruling invalidates the largest set of tariffs implemented in a century. The Trump Administration relied on IEEPA, an emergency powers statute, to impose sweeping tariffs on key trading partners in April 2025.

The Court concluded that taxing authority is not vested in the Executive Branch, immediately raising questions about the future direction of U.S. trade policy. Investors should recognize that tariffs are unlikely to disappear entirely. Within hours of the ruling, the administration announced a replacement plan using alternative statutory authorities. The legal channel has changed, but the policy intent has not.

Major Check on Executive Trade Power

Last year, the Administration rolled out a two-part tariff program that relied heavily on IEEPA. The program imposed tariffs of 25% on most Canadian and Mexican imports and 10% on most Chinese imports. In April, it expanded further through the announcement of reciprocal tariffs, establishing a 10% baseline on most imports alongside higher, country-specific rates for dozens of trading partners.

These tariffs were implemented through executive action and were frequently adjusted. They also drew swift legal challenges from businesses and state governments, which argued that IEEPA does not grant the Executive Branch authority to impose taxes, a power traditionally reserved for Congress. Lower courts ruled against the Administration, allowing the case to advance. After hearing arguments in November 2025, the Supreme Court ruled that IEEPA does not authorize the President to impose tariffs.

“The Framers did not vest any part of the taxing power in the Executive Branch… And they gave Congress alone access to the pockets of the people.” — Chief Justice John Roberts

What Comes Next

The Supreme Court’s decision addressed only one portion of the tariff framework, covering roughly $130 billion in tariffs collected since last January.¹ However, tariffs not under IEEPA remain fully intact. Most notably those implemented on China will remain.

This is more likely to represent a period of transition than a clean end to tariffs. While the structure may change, tariffs themselves appear likely to remain a feature of trade policy, albeit in a modified form. Within roughly two hours of the ruling, the administration invoked Section 122 authority, imposing an immediate 10% tariff for up to five months.

Potential Market Impact

Details over the coming days will matter as the Administration explores new avenues to pursue policies similar to those already in place. In the near term, markets may interpret the ruling as a form of tariff relief, particularly if interim rates are reinstated at lower levels, which may be supportive for equities.

At the same time, the ruling raises broader fiscal questions. Tariff receipts had been used as an offset for the stimulative components of the One Big Beautiful Bill, which became law in January. Any reduction in tariff revenue may renew focus on U.S. debt levels and fiscal sustainability.

As policy uncertainty remains elevated, our approach is unchanged. We continue to emphasize diversification and disciplined rebalancing rather than reacting to individual headlines. Diversification proved especially effective in 2025 and into the early part of this year, supported by strong international equity performance and continued stability in fixed income. We will continue to monitor developments closely and will provide updates should new information warrant additional attention.

For more information, please contact a member of our Investment Team.

1 Source: https://www.wsj.com/economy/trade/trump-tariffs-trade-uncertainty-119f4651

Navigating the Car Buying Process: A Guide to New vs. Used and Funding the Purchase

Benjamin Sullivan, CFP® — Tue, 10 Feb 2026 10:00:00 GMT

Purchasing a vehicle is a significant financial decision that requires careful consideration of both personal needs and long-term financial implications. Whether you’re buying your first car or replacing an existing one, understanding the nuances of the car buying process can help you make a more informed and financially sound choice. This guide explores two of the most critical decisions in the process: choosing between a new or used vehicle and determining the most appropriate payment method, whether paying in cash, financing, or leasing.

New vs. Used: Evaluating the Value Proposition

The decision between purchasing a new or used vehicle often hinges on a balance between cost, reliability, and personal preference. New cars offer the appeal of the latest technology, enhanced safety features, and the peace of mind that comes with a full manufacturer’s warranty. They are also free from wear and tear, and buyers can often customize them to their liking. However, these benefits come at a premium. New vehicles depreciate rapidly, often losing 20-30% of their value within the first year, making them a less attractive option for those concerned with long-term value retention.

Used vehicles, on the other hand, present a more cost-effective alternative. Buyers can often find well-maintained, late-model cars at significantly reduced prices. Certified Pre-Owned (CPO) programs offered by many manufacturers add an extra layer of assurance by including extended warranties and thorough inspections. While used cars may lack the latest features and carry a higher risk of maintenance issues, the slower depreciation curve and lower upfront cost make them an attractive option for budget-conscious buyers.

Payment Options: Cash, Financing, and Leasing

Once the vehicle choice is made, the next step is determining how to pay for it. Each payment method: cash, financing, or leasing, carries distinct advantages and trade-offs.

Cash Purchase

Paying in cash is the most straightforward option. It eliminates interest payments, provides full ownership from day one, and removes the burden of monthly car payments. However, it also requires a substantial upfront outlay, which may deplete savings or reduce liquidity that could otherwise be invested for higher returns. This option is best suited for individuals with ample cash reserves who plan to keep the vehicle for many years.

Financing

Financing the purchase allows buyers to spread the cost of the vehicle over several years. This approach makes higher-priced vehicles more accessible and can help preserve cash flow. If the auto loan’s interest rate is less than the expected rate of return on savings or investment accounts over the life of the loan, it may make sense to finance. You then can keep cash otherwise earmarked for the purchase invested to take advantage of the positive arbitrage. In addition, manufacturers and dealers tend to offer additional cash incentives that are tied to financing, so it’s important to keep that in mind when reviewing the pricing of the vehicles that you’re interested in.

Financing the purchase may also have a positive impact on your credit score by adding an additional form of credit to your score’s mix, assuming that you are consistent with on-time payments.

The downside of financing is the added cost of interest over the life of the loan, and the fact that the buyer does not fully own the vehicle until the loan is paid off. It is important to keep in mind that since cars are depreciated assets, financing with the intent of swapping the car out in a short period of time could result in the buyer being “underwater” or having an outstanding loan balance greater than the value of the vehicle. To mitigate these issues, you may consider a larger down payment (a common rule of thumb is 20% of purchase price; however, most buyers put down less, especially if the interest rate on the associated loan is attractive), or by avoiding the frequent trade-in of your cars.

The typical length for a car loan is between 48 and 72 months, but given the increased cost of new vehicles, we’ve seen this figure increase to 84 or even 96 months. It’s important to consider the depreciation of the vehicle and the amount of interest that you’ll pay over the life of the loan before extending the financing period.

Leasing

Leasing offers a different value proposition in which you pay the depreciation of a new vehicle over a set term, usually between two to four years. They generally entice with lower monthly payments and the allure of a new vehicle every few years (assuming you do not buy the car back from the bank at the end of the lease term) while avoiding the “underwater” situation noted above. Leases include warranty protection and may even cover required maintenance during the lease term, reducing out-of-pocket expenses versus buying a used car.

Leasing comes with mileage restrictions, potential fees for excessive wear and tear, and no equity in the vehicle at the end of the term. It is best suited for individuals who prioritize driving newer models and do not mind relinquishing ownership.

It’s also important to think about how to “structure” your lease; you should put as little money up front on a lease as possible. This is often referred to as a “sign and drive” deal, with upfront costs limited to the first month’s payment and fees. Additional money paid up front, including applicable taxes, is forfeited if the car is stolen or deemed a total loss by your insurance company.

A Note on Electric Vehicles

We live in an age where vehicle electrification is booming, with new manufacturers and models on offer each year. With fast-moving innovations and changes in technology, what may be cutting-edge today can be outdated in a few years. For this reason, we see that depreciation curves on electric vehicles tend to be steeper than those of traditional gas-powered or hybrid cars. For this reason, it may make sense to lease an EV rather than buying outright or financing to shift some of the accelerated depreciation risk to a lender rather than bearing it all yourself.

Key Figures to Understand When Leasing

For those considering a lease, it is essential to understand the financial components that determine the total cost of the lease. Two of the most critical figures are the money factor and the residual value.

The money factor is the leasing equivalent of an interest rate. It is typically expressed as a small decimal (e.g., 0.00125), but it can be converted to an approximate annual percentage rate (APR) by multiplying it by 2,400. A lower money factor indicates a better lease rate. While this figure is often negotiable and dealers can mark it up for additional profit, it is also influenced by your credit score and the leasing company’s terms.

The residual value represents the estimated value of the vehicle at the end of the lease term. It is expressed as a percentage of the vehicle’s MSRP (manufacturer’s suggested retail price). A higher residual value generally results in lower monthly payments, as you are only paying for the depreciation that occurs during the lease period. However, it also means the buyout price at the end of the lease may be higher if you choose to purchase the vehicle. The residual value is set by the bank and is not negotiable.

Lease vs. Finance: A Side-by-Side Comparison

To help clarify the differences between leasing and financing, the table below outlines the key features of each option:

Leaving the City and Getting Back on The Road?

For those transitioning from urban living to the suburbs or rural areas, buying a car after years of relying on public transportation comes with unique considerations. Beyond choosing the right vehicle for your new lifestyle, whether it’s one with all-wheel drive for snowy commutes or extra cargo space for weekend errands, the financial implications extend well beyond the sticker price. First-time buyers should be sure to budget for recurring costs such as insurance premiums, routine maintenance, and registration fees in addition to the expenses to run (whether it’s traditional gasoline, electricity, or a combination of the two) and store the vehicle.

Special Considerations When Purchasing a Classic or Collectible Car

For enthusiasts and investors alike, purchasing a classic or collectible car introduces a unique set of considerations that differ significantly from buying a daily driver. These vehicles are often valued not just for their utility, but for their historical significance, rarity, and potential for appreciation.

Valuation and Market Research: Unlike standard vehicles, classic cars do not follow conventional depreciation curves. Their value is influenced by factors such as provenance, originality, production numbers, and market trends. Resources like Hagerty’s Valuation Tools, auction house results, and marquee-specific registries can provide insight into fair market value and long-term investment potential.
Condition and Authenticity: A vehicle’s condition; often categorized as concours, excellent, good, or fair, has a substantial impact on price. Buyers should verify the authenticity of parts, matching numbers (engine, transmission, chassis), and restoration quality. Professional inspections and documentation reviews are essential to avoid costly surprises.
Storage and Maintenance: Classic cars often require specialized storage to protect against humidity, temperature fluctuations, and UV exposure. Maintenance can be more demanding due to the scarcity of parts and the need for mechanics familiar with vintage systems. These costs should be factored in the total cost of ownership.
Insurance and Registration: Standard auto insurance may not provide adequate coverage for collectible vehicles. Specialty insurers offer agreed-value policies that reflect the car’s appraised worth. Additionally, some states offer historic or antique vehicle registration, which may come with usage restrictions.
Liquidity and Exit Strategy: While some classic cars appreciate overtime, the market can be illiquid. Selling may require participation in auctions or consignment with specialty dealers. Buyers should consider their time horizon and whether the purchase is driven by passion, investment, or both.

Purchasing a classic car can be deeply rewarding, but it demands a more nuanced approach than buying a modern vehicle. Due diligence, expert guidance, and a clear understanding of ownership responsibilities are key to making a sound investment. Read more on investing in collectible cars here.

Helpful Resources for Car Buyers

In today’s digital landscape, several online platforms can simplify and enhance the car buying experience. These tools provide transparency, pricing insights, and negotiation leverage, empowering buyers to make more informed decisions.

Edmunds.com offers comprehensive vehicle reviews, pricing tools, and cost-to-own calculators. It’s particularly useful for comparing models and understanding long-term ownership costs.
TrueCar provides real-time market pricing data based on what others have paid for similar vehicles in your area. It’s a valuable resource for negotiating fair prices with dealers.
LeaseHackr is a community-driven platform focused on leasing. It features deal calculators (including a lease vs. buy section), discussion forums, and expert insights that help users evaluate lease offers and identify promotions.

Leveraging these platforms can help demystify the car buying process, whether you’re purchasing new or used, or exploring lease options.

Conclusion

The car buying process is multifaceted, with each decision carrying financial and practical implications. Choosing between a new or used vehicle involves weighing the benefits of modern features and warranties against cost savings and depreciation. Similarly, selecting a payment method requires a clear understanding of one’s financial situation, the overall cost of ownership for the vehicle, and one’s long-term goals. By approaching these decisions strategically and utilizing trusted resources, buyers can align their vehicle purchase with both their lifestyle and financial well-being.

Private Credit Under the Microscope: What Matters (and What Doesn’t)

The Wealthspire Team — Thu, 05 Feb 2026 10:00:00 GMT

Over the past decade, private credit lenders didn’t just grow, they became the de facto lender to many of the middle market businesses in America. The transition created genuine value for borrowers and attractive income for investors. That rapid rise helped to bring private credit into the mainstream, and assets under management grew substantially. Between 2014 and 2024, the size of the private credit market roughly quadrupled, with total AUM growing from about $500 billion to over $2 trillion according to data from Pitchbook.

However, as capital flooded into private credit markets, the market is facing one of its first major tests. A look at recent headlines reveals a handful of high‑profile defaults, renewed questions about liquidity, and a narrative that “too much capital” entered the space and weakened underwriting discipline. With sentiment beginning to shift, it is fair to step back and assess the opportunities and risks across the private credit marketplace.

In this piece, we will begin with a brief overview of what private credit is and why it has grown into such a prominent asset class (you can find a more thorough overview in our primer). Then, we will shift our attention to today’s most pressing questions:

Are high-profile defaults an early warning sign of systemic stress?
Does the flood of new capital undermine returns?

We will address these questions directly as we seek to separate new risks from those that are simply becoming more visible as the market matures.

A Brief Introduction to Private Credit

The term “private credit” refers to financing that takes place outside of traditional public debt markets, where institutional investors such as alternative asset managers, business development companies (BDCs), and insurance companies provide loans directly to privately held businesses or against specific pools of assets. Unlike publicly traded bonds or syndicated loans, these transactions are negotiated individually, allowing lenders and borrowers to customize terms, covenants, and structures to the specific needs of the borrower.

The attractiveness of private credit is rooted in its flexible structure. The asset class offers borrowers greater certainty of deal closing, the ability to work with fewer lenders, and rapid execution. Getting deals done faster and with fewer lenders allows businesses to focus on growth rather than being bogged down in the process of securing financing. For lenders, it can be easier to implement protections and covenants that are tailored to the specific deal and help mitigate downside risks.

In recent years, private credit has become synonymous with direct lending, the largest segment of the market. However, the opportunity set now spans direct lending, asset-based and specialty finance, opportunistic and special situations, along with NAV financing. Please see our “Private Credit 101” primer for a deeper dive into the mechanics of the private credit market.

Are high-profile defaults an early warning sign of systemic stress?

Not yet. In September 2025, financial headlines zeroed in on two significant bankruptcies in the auto industry as a cautionary tale of systemic risk in private credit. The collapse of TriColor (a subprime auto lender and used-car retailer) and First Brands (an aftermarket auto parts supplier) were used to paint the narrative. What headlines and most articles missed, however, is that neither deal was technically originated in the private credit market. Both transactions were led by banks and not backed by private equity sponsors as is common in private credit transactions.

Around the same time, we saw pressure and headlines building around an adjacent industry known as Business Development Companies (BDCs), a publicly traded structure that lends money to small and medium-sized US businesses. BDCs are unique in that they pay out most of their profits as dividends and provide investors access to private loans that are typically inaccessible. BDCs sit at the crossroads of several late‑cycle credit dynamics:

Tightening credit spreads
Rising non‑accruals or defaults
High refinancing activity squeezing interest income
Falling interest rate expectations

Public filings show that as interest rates fell and competitive pressure rose, BDC portfolio yields drifted down. With the syndicated loan market becoming more active and banks moving aggressively, BDCs were forced to adjust terms to retain deals. Credit quality remains broadly sound, but non‑accruals are growing and dividend cuts led to price declines.

The resulting narrative raised questions about systemic risk and potential contagion, but the evidence so far points to pressure, not panic. Rated BDCs still exhibit conservative leverage, strong liquidity, and predominantly first‑lien portfolios (~89%), which supported stable outlooks across the sector. While high‑profile borrower failures (such as TriColor and First Brands) weighed on sentiment, these cases reflect poor governance and structural issues not exclusive to the private credit industry rather than deterioration across core middle‑market lending.

It is worth remembering that defaults are a regular occurrence in private credit and BDC structure because they are, by design, a higher return-seeking (and therefore risk-bearing) asset class. The private credit market lends to borrowers that are often smaller, more levered, or more operationally complex than the typical investment-grade rated issuer. In exchange for taking those risks and accepting less liquidity, investors are compensated with higher yields and an influential role in the underlying business. According to Proskauer, the private credit default rate was 2.5% in the fourth quarter of 2025, higher than in recent years but not necessarily alarming.

That framing matters because it clarifies an important point: the existence of defaults is not evidence that private credit “doesn’t work” or is near a precipice about to fall off the cliff. The relevant questions are where defaults occur, why they’re happening, and what recovery rates look like when problems arise. Private credit isn’t built to avoid every default; it’s built to price for risk, control it through structure, and recover capital effectively when a borrower stumbles.

Does the flood of new capital undermine returns?

Private credit emerged following the Global Financial Crisis, when regulatory changes aimed at curbing risk-taking in the banking system constrained the lending capacity of traditional banks. The tightened regulatory environment left the corporate community underserved in terms of access to financing and created an opportunity for private lenders to step in and fill the void, leading to growth in the asset class. Today, it is a core component of private markets and attracts capital from a wide range of investors.

Private credit’s expansion was not driven by excessive risk taking, but rather by a shortage of available bank capital. In a well-functioning economy, borrowers need reliable access to credit, and the post-GFC reforms pushed lending responsibility away from the banks and towards the private markets. In that context, investors should not confuse a larger market with a riskier one.

With that said, the attractiveness of private credit as an asset class is impacted by increased capital. Going forward, it will be important for investors to remain vigilant of any discrepancies that arise between supply and demand for loans. There are two primary risks that arise:

Spreads: New issue direct lending spreads tightened materially in 2025 as seen in the chart below. Competition for lending compressed spreads from above 600 basis points in 2022 to below 500 basis points in 2025. Satellite credit is not as compelling today as in 2020-2022.
Underwriting: standards deteriorate as lenders find it increasingly difficult to deploy capital in a timely fashion.

We saw evidence of spread tightening in corporate lending over the past couple of years, and the compensation investors receive for risk taking continues to decline. The charts below illustrate the downward shift in yields and spreads. As the absolute level of income shifted lower, so did the excess yield that private credit offered in comparison to public fixed income.

Underwriting standards are tricky to assess in real time, but analysts often point to the increased usage of Payment-In-Kind (PIK) structures as a potential signal of underlying weakness. PIK is a loan structure where some or all interest on the loan is not paid in cash each period but is instead added to the loan balance and accrues to the principal. PIK allows borrower flexibility (smaller payments) in the near-term, but increases the total interest owed on the loan over its full life. In recent years, PIK structures became increasingly common in private credit, prompting speculation of a decline in credit quality. According to data from Lincoln International, the percentage of investments with PIK increased from 7% to 11% over the past four years, and in many cases, the PIK feature was added as an amendment to the loan structure (see graphic below).

The increased prevalence of PIK was driven by a variety of factors, including the rapid normalization of interest rates that occurred after 2021. As rates moved higher, borrowers with exposure to floating rate debt faced a commensurate increase in debt service burdens and sought relief from lenders which often came in the form of PIK. Generally speaking, increased PIK can be a sign of stress, but should not be taken as an absolute indicator of borrower weakness. PIK serves to provide liquidity relief to borrowers but also increases the lender’s claim size and grants additional negotiating leverage that can be used to strengthen the loan’s covenants. On balance, PIK usage is a signal that the balance of risk and reward is changing, and investors should understand that the environment is becoming more challenging for asset managers.

It should be noted though that the size and diversity of the private credit market aids in mitigating the risk of a large-scale collapse in prices. Private credit spans areas such as direct lending, asset‑based finance, and special/distressed situations. Each of the sub asset classes have their own distinct supply/demand dynamics and underwriting frameworks, and asset managers often specialize in one specific area. Certain parts could become more or less favorable relative to one another over time, but they are distinct enough that the risk of contagion is minimized. The primary risks investors face in the current market are higher competition and lower expected returns; something that is typical of a maturing market.

Conclusion

Because it can’t be traded in a timely fashion, private credit is – by default – a long-term investment. Investors are giving up day‑to‑day liquidity and price discovery in exchange for a higher expected return. That return premium exists because investors are:

Giving up the option to quickly liquidate their investment
Embracing structural complexity
Relying on manager deal sourcing, underwriting and monitoring

Private credit is an inherently risky asset class where outcomes can often rely on manager selection, deal structure, and risk controls. Defaults are inevitable, but disciplined underwriting and robust lender protections are a key defense against permanent impairment of capital.

This is why private credit tends to work best when it is utilized as a strategic allocation (not a tactical sleeve) and funded as part of satellite fixed income rather than core bonds. From a portfolio construction perspective, this involves properly sizing the allocation with consideration for the investor’s near-term liquidity needs and planned uses of capital.

Private credit’s growth put it under a microscope, and recent headlines painted the market with a broad brush. Certain of those headlines proved to be misleading, but others zeroed in on legitimate risks. The market’s evolution can be summarized as follows:

Yields are moving lower, primarily due to spread tightening and lower base interest rates. As a result, investors are receiving less compensation for risk taking relative to other types of credit.
Lenders are making concessions to borrowers, as reflected in the increased prevalence of PIK loans. By definition, PIK loans reduce cash flow for investors and pressure dividends.
The above dynamics combine to reduce the expected return of private credit, while signaling a potential increase in underlying risks.
Private credit remains an attractive portfolio allocation, but the “easy” returns have already been achieved. In the current market, investors should expect a more balanced relationship between risk and return.

Ultimately, investing is about tradeoffs, and investors must accept certain risks in exchange for appropriate compensation. For many years, private credit offered a return premium that easily justified those tradeoffs. Today, competition is balancing the risk and reward, but that does not negate the role the asset class can play when implemented thoughtfully.