01-02-2018, 08:39 AM
(This post was last modified: 01-02-2018, 08:40 AM by coffeyman76.)
(01-01-2018, 11:31 PM)crimsonghost747 Wrote: So let's see if I understood this correctly. Basically any tinkering with the portfolio after February will lead to massive capital gains taxes? So this is a true buy-hold-don't even look type of situation? In that case the 50 stocks might be a good number, but if you have any breathing room with making trades inside the portfolio then I would highly recommend somewhere around 30 stocks... keeping an eye on 50 stocks takes a lot of time.
It's quite a challenge indeed to buy into something for 40 years if you have no viable exit strategy. Is the endgame simply to leave this money for your kids? Because, if I understood it correctly, if you want to use it yourself then you'll end up paying the taxes at some point anyway. Keep in mind, you've hopefully got another 40 years left to roam around the planet.
That is partially correct, however the idea would be to use this portfolio and combine it with the FRN's and monetize the entire package. I need to complete my investments by 2/5 as I am only about half there. The dividends and interest in the FRN's pays (nearly) the cost to carry the loan. Ultimately I end up at a blended LTV of around 88%. I'm pretty committed to the 1042 even with all the rules and having to have such a short window to purchase QRP. It's really one of the few "gifts" in the tax code. Very similar to the 1031 Real Estate rollover.
So for example on hypothetical $5m sale price it would look roughly like this:
Pay tax of ~$1.5m with net after tax proceeds of $3.5m. Invest as you see fit.
OR
1042 rollover, defer/avoid cap gains. Purchase $5m in QRP. Secure that portfolio with a large institutional lender. Monetize to around $4.4m and invest as you see fit. Cost per year is a pre-tax hit of around $25,000 in interest. The entire portfolio would get stepped up in basis at death so depending on the loan balance on it the remainder would go to heirs without taxation.
So it is a true buy and hold and maybe even never look at it situation. If I want to donate to charity, CRUT, etc. then I would of course use QRP and not cash as the donation of QRP doesn't constitute disposition (or taxation). If the value rises enough or gains taxes get reduced and I want to re-adjust I could easily sell and just pay the tax at any time. It's usually a game of loss harvesting throughout the years to get rid of some bad apples, but that's getting beyond my mission just yet.
Ultimately the benefit of this is that in the hypothetical example for a cost of $25,000 per year (pre-tax) you start your outside investment portfolio with $0.9 to $1m more in funds. If it did nothing but earn 3% until death you'd do better than break even and your heirs would have nice inheritance. Of course that's not the goal. Once monetized it opens up the world of investing - real estate, REIT's, foreign, munis, ETF's, etc. Start an investor with an extra $1m and even the most fundamental investment strategy and the law of compounding would (or should) win every time.