ACATS — the Automated Customer Account Transfer Service — is a DTCC-operated electronic system that standardizes the transfer of customer brokerage accounts between firms. It handles full and partial transfers, preserves lot-level cost basis and acquisition dates via the Cost Basis Reporting Service, and settles in a typical 5–7 business-day window.
ACH — the Automated Clearing House — is the US bank-to-bank electronic money-movement network operated by NACHA. It handles roughly 30 billion transactions per year including direct deposit, bill payment, brokerage account funding, RIA advisory-fee debits, and corporate-to-corporate B2B payments. Standard ACH settles on a 1-3 business-day window; same-day ACH is available for an additional fee.
An advisory fee is the compensation paid to an investment advisor for portfolio management services. Most commonly structured as a percentage of assets under management (AUM), typically tiered (e.g., 1% on first $1M, 0.85% next $4M, 0.65% above $5M). Charged quarterly in arrears or in advance based on the prior period's average daily balance. Distinct from the underlying fund expense ratios paid separately to fund providers.
An aggregator API is a third-party service that connects to thousands of financial institutions on behalf of consuming applications, normalizes the data into a portable schema, and presents a single API. The major US aggregator APIs — Plaid, Yodlee, Akoya, MX — together cover essentially every US financial institution by account count.
Alternative investments are asset classes outside the traditional public equity / public fixed-income / cash trio. The category includes private equity, venture capital, hedge funds, direct real estate, real assets (timber, infrastructure, commodities), structured products, and direct private-company investments. Most carry illiquidity, accreditation gating, and performance-fee structures absent from public markets.
AMT is a parallel tax system designed to ensure that taxpayers with significant deductions or preference items pay a minimum amount of tax. Taxpayers compute their tax under both the regular system and the AMT system; they pay the higher of the two.
An asset class is a grouping of investments that share economic characteristics and respond similarly to market conditions. The standard top level is equities, fixed income, cash, real estate, and alternatives, with each subdivided into subclasses (large-cap growth equities, investment-grade corporate bonds, etc.).
A Backdoor Roth is a two-step IRA strategy for taxpayers above the Roth IRA direct-contribution MAGI phaseout: contribute non-deductible (after-tax) to a Traditional IRA, then immediately convert that contribution to a Roth IRA. The Roth conversion is tax-free if the taxpayer has no other pre-tax IRA balance, sidestepping the income limit on direct Roth contributions.
BAH is a US military allowance paid to service members in lieu of government-provided housing. The allowance is tax-free, varies by duty location and rank, and adjusts annually based on local housing-cost surveys.
A beneficiary is a person, trust, or entity designated to receive assets when an account or policy owner dies. Designations apply to retirement accounts, life insurance policies, annuities, and transfer-on-death (TOD) brokerage accounts, and they override the owner's will for the assets they cover.
BRS is the military retirement system effective for service members entering after January 1, 2018. It combines a reduced defined-benefit pension (2.0% of base pay per year of service, vs. 2.5% under the Legacy High-Three system) with TSP matching contributions of up to 5% of base pay.
A bypass trust (also called credit-shelter trust or B trust) is an irrevocable trust funded at the first spouse's death with assets equal to the deceased's federal estate-tax exemption. The surviving spouse may receive income (and limited principal under HEMS) for life, but the trust assets are NOT included in the survivor's estate — preserving the deceased's exemption for the next generation along with any growth on the trust assets.
A capital call is a request from a private fund's General Partner (GP) to its Limited Partners (LPs) to contribute a portion of their previously-committed capital. Notice is typically 7–14 days; the LP must wire the requested amount by the due date. Failure to fund a call is a default — typically with severe consequences ranging from loss of LP interest to forced sale of the LP's position at a discount.
A capital gain is profit realized from the sale or exchange of a capital asset — the difference between sale proceeds and adjusted cost basis. Short-term gains (asset held one year or less) are taxed as ordinary income; long-term gains are taxed at preferential rates of 0%, 15%, or 20% depending on taxable income, with an additional 3.8% Net Investment Income Tax for high earners.
Carryover basis is the rule (IRC §1015) where a gifted asset's cost basis in the recipient's hands equals the donor's basis at the time of the gift, plus any gift tax paid attributable to appreciation. The donor's holding period also carries over, so an asset gifted on day 364 of its holding period becomes long-term in the recipient's hands the next day.
A cash sweep is the automatic daily movement of brokerage-account cash balances into a yield-bearing program. The default sweep options vary by custodian: government money market mutual funds, FDIC-insured deposit programs (multi-bank IDP), or proprietary cash management products. Rate, FDIC coverage, and tax treatment differ across the three; the default-sweep choice is one of the largest hidden cost differences across major brokers.
CLT is an irrevocable trust that pays income to one or more charitable beneficiaries for a term of years, with the remainder going to non-charitable beneficiaries (typically the donor's family). The donor's tax treatment depends on whether the CLT is structured as a grantor or non-grantor trust.
A corporate action is an event initiated by an issuer that affects outstanding shares: stock splits, reverse splits, spinoffs, mergers (cash or stock), special dividends, name changes, exchanges, and rights offerings. Each requires a basis-and-share-count adjustment for holders, and each is a frequent source of cost-basis reporting errors at brokers.
Cost basis is the original value of an asset for tax purposes — typically the purchase price plus commissions and acquisition costs, adjusted over time for events like splits, return-of-capital distributions, wash-sale disallowances, and inheritance step-ups.
CRDP and CRSC are two programs that allow military retirees with VA disability ratings to receive both retirement pay and VA disability compensation, partially offsetting what would otherwise be a dollar-for-dollar reduction in retired pay. CRDP applies to non-combat-related disabilities; CRSC applies to combat-related disabilities.
CRT is an irrevocable trust that pays income to one or more non-charitable beneficiaries (typically the donor or spouse) for a term of years or for life, with the remainder going to a charitable beneficiary. The donor receives an upfront tax deduction equal to the present value of the charitable remainder.
A Crummey power is a temporary withdrawal right (typically 30 days) granted to trust beneficiaries when the grantor contributes to the trust. The right qualifies the contribution as a 'present interest' under §2503(b), making it eligible for the annual gift-tax exclusion ($19,000 per donor per recipient for 2026). Named after Crummey v. Commissioner (397 F.2d 82, 1968).
A custodian is the financial institution that holds securities and cash on behalf of a client, providing settlement, reporting, and corporate-action processing. Major retail and RIA-channel custodians include Charles Schwab, Fidelity, Pershing, BNY Mellon, and JPMorgan; each has its own account-numbering scheme, statement format, and operational quirks.
DAF is a charitable giving vehicle held at a sponsoring 501(c)(3) organization. Donors receive an immediate tax deduction at contribution, the assets grow tax-free in the DAF, and the donor recommends grants to qualifying charities over time — separating the timing of the deduction from the timing of the gifts.
Decanting is the act of a trustee exercising discretionary distribution authority to distribute trust assets to a new trust with different terms — effectively amending an otherwise irrevocable trust. The 'distribution' is from the original trust to the second trust; the second trust is often a newly-formed trust with revised terms reflecting current family or tax circumstances. Available in 30+ states under explicit decanting statutes; some other states permit it under common-law principles.
A Defined Benefit (DB) plan is an employer-sponsored retirement plan that promises a specific benefit at retirement, computed by the plan's benefit formula (typically years-of-service × accrual-rate × final-pay-average). The employer bears the investment risk and funding obligation. Plan benefits are insured by the PBGC for private-sector single-employer plans up to age-specific maximums.
A directed trust is a trust structure where the trust document delegates specific decision-making authority — typically investment direction, distribution direction, or both — to a separate party (the 'trust director') distinct from the administrative trustee. The trustee handles operations and reporting; the director makes the substantive decisions in their domain. Most US states have enacted directed-trust statutes (~25+ states) with the Uniform Directed Trust Act as the model.
A distribution from a private fund is a payment to its limited partners (LPs) representing return of capital or profit. Distributions arrive after a fund exits an investment (sale, IPO, recapitalization) and the GP elects to distribute proceeds rather than retaining them. Tax character — return of capital, long-term capital gain, dividend, ordinary income — flows through to LPs via K-1 with multi-tier breakdown.
A dividend is a distribution of a company's earnings to shareholders. For tax purposes, dividends are classified as qualified (taxed at preferential long-term capital-gain rates if holding-period requirements are met), ordinary / non-qualified (taxed at ordinary income rates), or return of capital (no current tax, basis reduction).
A DRIP (Dividend Reinvestment Plan) is the automatic reinvestment of dividend distributions into additional shares of the paying security. Each reinvestment creates a new tax lot at the reinvestment-day price; over years, DRIPped positions accumulate dozens of small fractional lots. Available at most retail brokers (broker-administered DRIP) and directly from many issuers (issuer-administered DRIP, often at small discounts).
The Deceased Spousal Unused Exemption (DSUE) is the portion of a deceased spouse's federal estate tax exemption that was unused at the first death and is inherited by the surviving spouse through a portability election (§2010(c)(5)). DSUE is fixed at the dollar amount calculated on the first death's Form 706 and does NOT receive inflation indexing between deaths.
DTC — the Depository Trust Company — is the central securities depository for US-listed securities. It's a subsidiary of DTCC (Depository Trust & Clearing Corporation) and holds essentially every share of every US-listed stock, bond, and ETF in aggregate 'street name' on behalf of brokerages and their customers. DTC processes corporate actions, handles settlement, and operates the rail through which ACATS transfers move.
ESPP is an employer-sponsored plan under Section 423 of the tax code that lets employees purchase company stock at a discount (typically 15%) through after-tax payroll deductions over a defined offering period.
The federal estate tax exemption is the dollar amount of taxable estate (at death) or cumulative lifetime taxable gifts that passes free of federal estate or gift tax. The 2026 amount is $13.99M per individual (indexed annually). The TCJA's doubled exemption is scheduled to sunset on January 1, 2026, reverting to approximately $7M per individual (pre-TCJA $5M base, inflation-adjusted), absent legislative extension.
The ex-dividend date (ex-date) is the cutoff day for dividend eligibility on a given distribution. Investors who buy the stock on or after the ex-date are NOT entitled to the dividend; sellers who hold through the day before ex-date retain entitlement. Set by the exchange, typically one business day before the record date, to align with T+1 settlement.
FATCA is a 2010 US law that requires foreign financial institutions to report on accounts held by US taxpayers, and requires US taxpayers with foreign financial assets above threshold to file Form 8938 (Statement of Specified Foreign Financial Assets) with their tax return.
FBAR is a US Treasury filing (FinCEN Form 114) required of US persons whose aggregate foreign financial account holdings exceed $10,000 at any point during the calendar year. Filed annually with FinCEN, separate from the IRS tax return.
FDX — the Financial Data Exchange — is an industry-led open standard for consumer financial data exchange between aggregators, institutions, and consumer-facing applications. It defines a tokenized OAuth-based access model (replacing credential-based screen-scraping), a shared JSON resource taxonomy (Account, Holding, Transaction, Customer, Statement), and a conformance certification with phase levels. Major US aggregators and institutions are FDX members or affiliates.
FIFO (First-In-First-Out) is a tax-lot relief method that sells the oldest acquired lots first. It is the default lot-relief method for most equities under SEC Rule 200, and the legacy default for mutual funds and ETFs absent an explicit alternative election by the taxpayer.
The Foreign Tax Credit (FTC) is the US tax mechanism that gives US holders of foreign-source income a credit against US tax for foreign tax already paid on the same income. It's claimed on Form 1116 with separate computation by 'basket' (passive vs. general category), per-country sourcing, and a 10-year carryforward for unused credits.
Form 5471 is the IRS information return required of US persons holding interests in Controlled Foreign Corporations (CFCs) and certain other foreign corporations. It includes the CFC's financial statements, ownership structure, and the basis for Subpart F and GILTI inclusion calculations. There are multiple filer categories with different schedule requirements; failure-to-file penalties start at $10,000 per form per year.
Form 8938 is the FATCA-driven reporting form filed annually with the US tax return by US persons holding foreign financial assets above specified thresholds. It overlaps with — but is not identical to — the FBAR (FinCEN Form 114) reporting requirement. Failure-to-file penalties start at $10,000 and can scale with the size of the unreported assets.
A fractional share is ownership of less than one whole share of a security — e.g., 0.4523 shares of AAPL. Enabled by broker-side share-fragmentation rather than being a feature of the underlying security itself. Common in dividend reinvestment programs (DRIP), employee stock purchase plans (ESPP), corporate actions (stock splits, mergers), and direct retail-investing platforms.
A gate is a fund LPA provision allowing the GP to limit aggregate LP redemptions during any single redemption period — typically capped at 10–25% of fund NAV. When LP redemption requests exceed the gate, the redemption pool pro-rates down to the gate amount; remaining redemption requests carry forward to subsequent windows. Activates during stress periods to prevent fire-sale of fund assets.
GILTI — Global Intangible Low-Taxed Income — is a US tax on certain foreign-corporation income flowing through to US shareholders, created by the 2017 Tax Cuts and Jobs Act. It applies to 10%+ US shareholders of Controlled Foreign Corporations (CFCs) and is intended to discourage shifting profits to low-tax jurisdictions. GILTI inclusions are reported on Form 8992.
GIPS — the Global Investment Performance Standards — is a CFA Institute standards regime governing how investment managers present historical performance to prospective and existing clients. It mandates time-weighted return computation, composite construction across all fee-paying discretionary accounts, and a specific disclosure framework. GIPS-compliant presentation is the de-facto baseline for institutional asset managers competing for mandates.
A GRAT is an irrevocable trust into which the grantor transfers assets, retaining the right to receive a fixed annuity payment from the trust for a specified term of years. At the end of the term, the remaining trust assets pass to the named beneficiaries. The gift-tax cost of the transfer is the present value of the remainder, computed using the §7520 rate (the IRS-published interest rate for actuarial valuations).
GST Exemption is the federal lifetime exemption from the Generation-Skipping Transfer (GST) tax — a tax imposed on transfers to grandchildren or unrelated persons more than 37.5 years younger. The 2026 exemption is $13.99 million per person, scheduled to drop to roughly $7M after the TCJA sunset in 2026.
A hardship withdrawal is a 401(k) distribution allowed by IRS regulations under specific immediate-and-heavy financial-need categories (medical expenses, tuition, principal-residence purchase or eviction-prevention, funeral expenses, qualifying natural-disaster losses, and post-secondary education). Subject to ordinary income tax and a 10% early-withdrawal penalty if the participant is under 59½.
A hedge fund is a pooled investment vehicle that uses strategies beyond traditional long-only investing — long/short equity, market-neutral, global macro, fixed-income arbitrage, distressed debt, event-driven, and various combinations. Restricted under Rule 506(c) of Regulation D to accredited investors; charges a typical 2-and-20 fee structure (2% management fee + 20% performance fee above hurdle, with high-water-mark protection).
HEMS is the trust-distribution standard limiting trustees to distributions for the beneficiary's Health, Education, Maintenance, and Support. Recognized under IRC §2041(b)(1)(A) as an 'ascertainable standard' — a beneficiary serving as their own trustee under HEMS does NOT have a general power of appointment, so the trust assets are not includable in the beneficiary's estate. This is the structural mechanism allowing beneficiary-trustees to control their own trust without estate inclusion.
HIFO (Highest-In-First-Out) is a tax-lot relief method that sells the highest-cost-basis lots first, minimizing the realized capital gain on a partial sale. Unlike FIFO, HIFO is a configured rather than default method — the taxpayer must elect it with the custodian.
A high-water mark is a provision in hedge fund fee structures preventing the GP from charging performance fees until prior losses have been fully recouped. The high-water mark is the highest cumulative NAV the LP has previously seen; performance fees apply only on returns above this level. Protects LPs from paying double fees on the same upside.
A holding (or position) is a specific asset held within an account — typically identified by ticker, CUSIP, or an internal security ID, with associated share count, cost basis, market value, and (in tax-aware systems) lot-level acquisition history.
A Health Savings Account is a tax-advantaged account available to individuals enrolled in High-Deductible Health Plan (HDHP) coverage. Contributions are deductible (or pre-tax via payroll). Growth is tax-free. Distributions for qualified medical expenses are tax-free at any age. After age 65, distributions for any purpose are taxed as ordinary income with no penalty. The combination is the only triple-tax advantage in the US tax code.
A hurdle rate is a minimum return threshold a fund must exceed before performance fees apply. Two main variants: 'soft' hurdle (fees apply on the full return once the threshold is met) and 'hard' hurdle (fees apply only on returns ABOVE the threshold). Common in hedge funds (typical 4–8% hurdle) and PE funds (typical 8% preferred return). LP-favorable structures typically include hard hurdles with high-water-mark protection.
IDGT is an irrevocable trust intentionally structured to be 'defective' for income tax purposes (the grantor remains taxable on the trust's income) but effective for estate tax purposes (the trust assets are outside the grantor's estate). Used for sophisticated wealth-transfer planning.
IDR is a category of federal student loan repayment plans (SAVE, PAYE, IBR, ICR) that cap monthly payments based on the borrower's discretionary income — typically 5-15% of income above a poverty-level threshold — with forgiveness of remaining balance after 20-25 years.
An ILIT is an irrevocable trust that owns a life insurance policy on the grantor's life. The grantor pays premiums into the trust (gifts to the trust); the trust pays the policy carrier. At the grantor's death, the death benefit pays into the trust rather than to the grantor's estate. Trustees distribute proceeds to beneficiaries according to trust terms — keeping the entire death benefit outside the federal estate-tax base.
An in-kind transfer (or 'in-specie transfer') is the movement of securities from one account to another without selling them. The shares move directly between custodians; cost basis, holding period, and tax-lot identity are preserved. The Automated Customer Account Transfer Service (ACATS) handles most US brokerage in-kind transfers; non-ACATS-eligible assets require manual protocols that take significantly longer.
A Fixed Indexed Annuity (FIA) is a deferred annuity whose interest crediting is determined by a formula tied to a market index (S&P 500, NASDAQ, custom indices) with caps (maximum credit), participation rates (fraction of index return credited), and floors (typically 0% — no negative crediting). The contract combines fixed-annuity principal protection with limited equity-market upside.
An IRA (Individual Retirement Account) is a tax-advantaged retirement account owned by an individual rather than sponsored by an employer. Two main flavors: traditional (pre-tax contributions deductible at MAGI thresholds, taxable on withdrawal) and Roth (after-tax now, tax-free withdrawal in retirement). 2026 limits: $7,000 base, $1,000 catch-up at age 50+.
Income in Respect of a Decedent (IRD) is income that the deceased was entitled to but had not yet received before death. Taxable to the recipient (heir, estate, or trust) at ordinary rates as the right to receive transfers — without the §1014 step-up basis treatment that applies to capital assets. Common examples: traditional (pre-tax) retirement-account balances, deferred compensation, accrued bond interest.
IRMAA is an income-driven surcharge on Medicare Part B and Part D premiums for higher-income retirees. It is calculated using a 2-year income lookback — your IRMAA tier in year N is determined by your modified adjusted gross income in year N-2.
ISO is a type of employer-issued stock option under Section 422 of the tax code that, if held for the required periods, qualifies for favorable long-term-capital-gains tax treatment on the entire gain — making it more tax-advantaged than NQSOs (Non-Qualified Stock Options).
ITIN is a US tax processing number issued by the IRS to individuals who must pay US taxes but are not eligible for a Social Security Number. ITINs are nine digits beginning with the number 9 and are formatted similarly to SSNs (NNN-NN-NNNN).
LIFO (Last-In-First-Out) is a tax-lot relief method that sells the most-recently-acquired lots first. It is rarely used in personal investing for traditional securities (FIFO and HIFO dominate) but appears in crypto-asset taxation and in specialized short-term-loss-harvesting strategies where newer lots have lower basis than older ones.
A lockup period is the initial period at the beginning of an investor's tenure during which redemption is fully or partially restricted. Common range: 6–24 months for hedge funds; some institutional-grade funds have 36+ months. Designed to give the GP stable capital during the initial deployment period, when premature redemption could force unfavorable position sales.
A margin loan is a loan from a brokerage to a client, secured by marginable securities held in the client's brokerage account. Federal Regulation T sets the initial margin requirement (typically 50% of marginable equity); brokerage maintenance requirements (often 25–35%) trigger margin calls when account equity falls below the threshold.
Market value is the current price of a holding multiplied by share count. For exchange-traded securities it's marked to the most recent available price tick; for mutual funds, the most recent NAV; for private investments, the most recent reported value (often quarterly and stale).
Maximum drawdown is the largest cumulative loss from a previous peak to a subsequent trough during a measurement period, measured in percent of the peak. It captures the worst path-dependent loss an investor could have experienced if they bought at the wrong time.
The Mega Backdoor Roth is a 401(k) strategy that moves up to ~$46,500 (2026, after employee elective deferrals and employer match) of after-tax non-Roth contributions into a Roth account via in-plan conversion or in-service rollover. The strategy effectively unlocks Roth-status saving far beyond the $7,000 IRA limit.
A merger is a corporate action where one company acquires another. Shareholders of the target receive consideration — cash (cash merger, fully taxable as a deemed sale), stock of the acquirer (stock merger, generally non-taxable under §354 with basis carryover), or a mix (cash-and-stock merger, partial taxable event for the cash portion). Stock-merger ratios determine the post-merger share count and per-share basis.
Money-Weighted Return (MWR) is the internal rate of return (IRR) on a portfolio's cash-flow stream — the discount rate that makes the present value of all contributions equal to the present value of all withdrawals plus the ending portfolio value. Unlike TWR, MWR includes the impact of cash-flow timing and is what the investor actually earned.
Net Asset Value (NAV) is the per-share or per-unit value of a fund's net assets, calculated as (total assets − total liabilities) / units outstanding. For mutual funds and ETFs, NAV is computed daily after market close. For hedge funds and private funds, NAV is computed monthly or quarterly with a reporting lag of 30–90 days. The lag is the operational reality of illiquid-asset valuation.
The Net Investment Income Tax (NIIT) is a 3.8% federal surtax under §1411 imposed on the lesser of (a) net investment income or (b) the excess of modified adjusted gross income over a threshold ($200,000 for single, $250,000 for married filing jointly, $125,000 for married filing separately). The thresholds are NOT indexed for inflation — the 'high earner' definition has compressed every year since 2013.
A non-resident alien (NRA) is a non-US-citizen who fails both the green-card test and the substantial-presence test for US tax residency. NRAs are taxed only on US-source income, typically via 30% statutory withholding on US-source dividends, interest, and certain other income (often reduced by tax treaty), with FDAP (Fixed, Determinable, Annual, Periodical) withholding rules handling most cases.
Non-Qualified Deferred Compensation (NQDC) is an employer-sponsored arrangement that allows an executive to defer salary, bonus, or other compensation beyond the IRC §402(g) and §415 limits that constrain qualified retirement plans. Subject to IRC §409A rules with rigid distribution-election timing, employer-creditor risk, and severe penalties for plan failures.
NQSO is a type of employer-issued stock option that does not meet the Section 422 requirements for ISO treatment. The bargain element (current market price minus strike price) is taxed as ordinary income at exercise, with required employer withholding.
A PFIC (Passive Foreign Investment Company) is a foreign corporation meeting either the 75% passive-income test (75%+ of gross income is passive) or the 50% passive-asset test (50%+ of assets produce or are held for production of passive income). US persons holding PFIC stock face punitive default tax treatment under §1291 unless they elect into QEF (Qualified Electing Fund) or mark-to-market regimes.
A Pledged Asset Line (PAL) is a revolving line of credit from a brokerage firm secured by a non-retirement brokerage account. Distinguished from margin loans by: lower rates (typically 50–100 bps lower than margin), more conservative LTV requirements (often 50–60% vs margin's 70%+), and a critical restriction — PAL proceeds may NOT be used to purchase additional securities. Common uses: real-estate down payments, business funding, tax payments, bridge financing.
Portability is the federal estate-tax election under §2010(c)(5) allowing a surviving spouse to inherit and use the Deceased Spousal Unused Exemption (DSUE) — the portion of the deceased spouse's federal estate tax exemption that wasn't used at death. The election requires a timely-filed Form 706 estate tax return on the first death, even when no tax is owed.
A power of appointment is a beneficiary's authority to direct who receives trust assets — either at the beneficiary's death (testamentary power) or during the beneficiary's life (lifetime power). 'General' powers permit the powerholder to appoint to themselves, their estate, their creditors, or their estate's creditors — and trigger estate inclusion under §2041. 'Limited' (or 'special') powers restrict appointment to a specific class — and do NOT trigger estate inclusion.
Private Equity (PE) is investment in privately-held companies, typically through structured fund vehicles. Common strategies: large-cap buyout (acquiring controlling interest in mature companies), growth equity (minority stakes in fast-growing private companies), distressed/special-situations (buying underperforming or bankrupt assets), and secondaries (buying existing LP interests in other PE funds). Investment horizons of 7–10 years; returns characterized by the J-curve.
A private foundation is a 501(c)(3) charitable entity controlled by a family, individual, or corporation. Distinct from public charities, private foundations face an annual minimum 5% qualifying-distribution payout requirement (§4942), a 1.39% excise tax on net investment income (§4940), strict self-dealing rules (§4941), and reduced charitable-deduction percentages for donors. Trade operational complexity for granular control over grant-making and longer-term family philanthropy.
The pro-rata rule (IRC §408(d)(2)) requires that all of a taxpayer's traditional, SEP, and SIMPLE IRAs be aggregated when calculating the taxable portion of any distribution or Roth conversion. The taxable percentage equals (pre-tax balance) ÷ (total IRA balance), and applies regardless of which specific IRA the conversion comes from.
PSLF forgives the remaining balance on Direct Loan student debt after 120 qualifying monthly payments while employed by a qualifying public-service employer (government or 501(c)(3) nonprofit). The forgiven amount is not taxable.
Pass-Through Entity (PTE) Tax is a state-level election allowing a partnership or S-corporation to pay state income tax at the entity level rather than passing through to owners. The entity-level payment is fully deductible federally as a business expense, bypassing the $10,000 SALT cap that applies to individual state-tax deductions. The owners receive a state-level credit for the tax paid by the entity.
QBI is a deduction (Section 199A) of up to 20% of qualified business income from pass-through entities (sole proprietorships, partnerships, S-corporations). The deduction is subject to phaseouts and limitations based on taxable income, the business's classification as a Specified Service Trade or Business (SSTB), and W-2 wages paid by the business.
A QCD is a direct transfer from an IRA custodian to a qualifying public charity, available to IRA holders age 70½ or older. The amount transferred satisfies RMD obligations dollar-for-dollar but does NOT count as taxable income to the IRA holder or raise MAGI — making QCDs uniquely valuable for managing IRMAA tier transitions and other AGI-driven phaseouts.
A QPRT is an irrevocable trust holding the grantor's primary or secondary residence for a specified term of years (typically 10–20 years). The grantor retains rent-free use of the residence for the term; at term-end, ownership passes to the named beneficiaries. The gift-tax cost equals the residence's full value minus the present value of the grantor's retained interest, often producing 30–50% gift-tax savings versus an outright gift.
QSBS is stock issued by a qualifying C-corporation that, when held for 5+ years and meeting other Section 1202 requirements, can exclude the first $10 million (or 10× the holder's basis, whichever is greater) of gain from federal capital gains tax.
QTIP (Qualified Terminable Interest Property) is a trust structure under §2056(b)(7) where the surviving spouse receives all income from the trust for life, with the principal passing to other beneficiaries (typically children or trusts for children) at the surviving spouse's death. QTIP trusts qualify for the unlimited marital deduction at the first spouse's death even though the spouse doesn't receive the principal — solving the blended-family inheritance problem.
Real estate (direct) is direct ownership of residential or commercial property — single-family rentals, multifamily buildings, commercial buildings, raw land. Distinct from REIT or real-estate-fund exposure, direct ownership generates rental income, gain or loss on disposition, depreciation deductions, and §469 passive-activity tax mechanics that differ materially from public-market exposure.
Reg BI is SEC Regulation Best Interest (Release No. 34-86031), effective June 30, 2020, requiring broker-dealers to act in the best interest of their retail customers when recommending securities or investment strategies. It is enforced through four obligations: Disclosure, Care, Conflict-of-Interest, and Compliance.
A REIT is an entity (publicly traded or privately held) owning income-producing real estate, qualified under IRC §856 by holding 75%+ of assets in real estate, deriving 75%+ of gross income from real estate, and distributing 90%+ of taxable income annually to shareholders. Distributions to shareholders carry mixed tax character — ordinary dividend, return of capital, capital-gain distribution — typically reported on the year-end 1099-DIV.
A reverse stock split is a corporate action consolidating outstanding shares by a ratio (1-for-5, 1-for-10, 1-for-20) with a proportional increase in per-share price. Total market capitalization unchanged. Per-share cost basis is multiplied by the reverse-ratio; total basis is preserved. Holding period of original shares carries over.
RMD is the minimum amount that must be withdrawn from tax-deferred retirement accounts (Traditional IRA, 401(k), 403(b)) each year starting at age 73, calculated using the IRS Uniform Lifetime Table. The age increases to 75 starting in 2033 under the SECURE Act 2.0.
RMD aggregation is the IRS rule (IRC §408(a)(6); Reg §1.408-8 Q&A-9) permitting required minimum distributions to be totaled across multiple accounts of the same type and satisfied by withdrawing the aggregate from any one or any combination of the accounts. Aggregation applies to IRAs and 403(b)s; 401(k)s and similar qualified plans are explicitly excluded.
A rollover is the movement of retirement-plan assets from one tax-advantaged account to another (e.g., 401(k) to IRA, IRA to IRA, 403(b) to 401(k)) without triggering current taxation. Two main mechanics: direct (trustee-to-trustee) rollovers and 60-day rollovers — with markedly different rules and risks.
RSU is a grant of company stock that vests over time according to a defined schedule. At each vesting event, the fair market value of the vested shares is taxed as ordinary income (W-2 wages), and the employee receives the shares (or cash equivalent for cash-settled RSUs).
SBP is a US military annuity benefit that provides ongoing income to a service member's surviving spouse or dependent children after the retiree's death. The retiree elects coverage at retirement at a cost of 6.5% of the elected base amount (up to full retired pay) and the survivor receives 55% of the elected base amount.
SEP-IRA is a retirement plan for self-employed individuals and small businesses, allowing employer contributions of up to 25% of compensation (or 20% of net self-employment income for sole proprietors) up to a 2024 maximum of $69,000 per year.
Settlement date is the date on which a trade is finalized and ownership of the security legally transfers from seller to buyer. Most US equity trades settle on T+1 (one business day after the trade date) under SEC rules effective May 28, 2024. Bonds, mutual funds, and certain international securities settle on different schedules.
Sharpe ratio = (R_p − R_f) / σ_p, where R_p is the portfolio's return, R_f is the risk-free rate over the same period, and σ_p is the standard deviation of the portfolio's excess return. It quantifies excess return earned per unit of total volatility — a measure that reduces a strategy's risk and reward to a single comparable number.
A side pocket is a bucket within a hedge fund that holds illiquid positions, segregated from the main fund's NAV calculation and redemption mechanics. LPs receive proportional side-pocket interest at the time of side-pocket creation; redemptions of side-pocket holdings are tied to the underlying asset's eventual disposition rather than to the fund's regular redemption windows. Used to prevent illiquid positions from contaminating the main fund's liquidity.
SLAT is an irrevocable trust funded with one spouse's lifetime gift exemption, naming the other spouse as a discretionary beneficiary. The structure allows the family to use the federal gift exemption (currently $13.61M per spouse) while preserving the funding spouse's indirect access to the trust assets through distributions to the beneficiary spouse.
Solo 401(k) is a 401(k) plan for self-employed individuals with no employees other than a spouse. It combines an employee deferral (up to $23,000 in 2024, plus $7,500 catch-up if age 50+) and an employer profit-sharing contribution (up to 25% of compensation), providing higher total contribution capacity than a SEP-IRA at the same income level.
Specific Lot Identification ('Spec ID') is a tax-lot relief method where the taxpayer designates the exact lots to be sold on each trade, overriding the account's default method. It is the only method that allows fully surgical tax outcomes — selecting any combination of lots to optimize for short/long mix, basis targeting, or wash-sale avoidance.
A SPIA — Single Premium Immediate Annuity — is an annuity contract purchased with a single lump-sum premium that immediately begins paying a guaranteed income stream for life (or for a specified period). Unlike deferred annuities, a SPIA has no cash value, no surrender option, and no rider complexity. It is the simplest and most actuarially transparent annuity product.
A spinoff is a corporate action where a parent company distributes shares of a subsidiary directly to existing parent-company shareholders. After the distribution, parent and spinoff trade as two separate public entities. Generally non-taxable under §355 if the spinoff meets statutory requirements (active business, distribution of control, business purpose, no plan to dispose of either entity). Cost basis allocates between parent and spinoff per the issuer's Form 8937; holding period carries over to both.
SSTB is a category of businesses excluded from the full QBI deduction at higher income levels under Section 199A. Categories include health, law, accounting, actuarial science, performing arts, consulting, athletics, financial services, brokerage services, investment management, and any business whose principal asset is the reputation or skill of one or more employees.
Step-up in basis is an adjustment under IRC §1014 of an inherited asset's cost basis to its fair-market-value (FMV) on the date of the original owner's death. The original owner's basis is discarded; the heir takes a new basis equal to FMV, eliminating any unrealized appreciation as a future taxable event.
A stock split is a corporate action increasing the number of outstanding shares by a ratio (commonly 2-for-1, 3-for-1, 4-for-1, or 5-for-1) with a proportional reduction in per-share price. Total market capitalization is unchanged. For tax purposes, total cost basis is preserved; per-share basis is divided by the split ratio. Holding period of the original shares carries over to the post-split shares.
Survivorship bias is the error introduced when a historical sample contains only entities that survived to the end of the measurement period — failed funds, delisted stocks, defaulted bonds, dissolved companies — silently absent from the dataset. Backtests run on survivor-only data systematically overstate returns, understate risk, and report manager skill that includes invisible loser-removal.
Synthetic data validation is the process of verifying that generated synthetic data meets schema, referential, and business-rule constraints before being promoted to a production catalog. Common validation categories: arithmetic identities, internal consistency, narrative richness, and archetype fidelity. WealthSchema's strict-fail policy: any warning fails the household; no exceptions.
Synthetic wealth data is artificially generated financial data that mimics the structure, distributions, and edge cases of real household portfolios — accounts, holdings, transactions, tax lots, beneficiaries — without copying or anonymizing any real individual's records. Properly built, it carries zero re-identification risk while preserving the joint-distribution realism your engine actually needs to test.
A tax lot is a discrete batch of a security carrying its own acquisition date, share count, cost basis, and holding-period clock. Buying 100 shares once creates one lot; buying 100 shares across three different days creates three lots, each tracked separately for tax purposes.
A tax treaty is a bilateral agreement between the US and a foreign jurisdiction that overrides default tax rules for cross-border situations. Treaties typically reduce source-country withholding rates on dividends and interest, give residence-country priority on most income types, and provide tie-breaker rules for dual-residents. The US has approximately 70 active income-tax treaties.
Tax-lot relief is the umbrella term for the methodology used to determine which specific lots of a security are sold when only some lots are dispositioned. Common methods: First-In-First-Out (FIFO, the default), Last-In-First-Out (LIFO), Highest-Cost-First-Out (HIFO), Average Cost (mutual funds default), and Specific Lot Identification (taxpayer-elected). The choice has direct consequences on realized gain or loss, holding-period mix, and downstream tax cost.
Time-Weighted Return (TWR) is a return measure that breaks the reporting period into sub-periods at every external cash flow, computes a per-sub-period return, and geometrically links them. The result is the return a hypothetical $1 invested at the start would have earned, independent of when contributions or withdrawals occurred.
Tokenized account access is an OAuth-style authorization model for aggregator-to-institution data flow. The customer authenticates directly with their institution; the institution issues a refresh token to the aggregator; the aggregator presents the token on subsequent API calls. The model replaces credential-based screen-scraping and is the default for FDX-conformant institutions.
A trust account is a financial account legally owned by a trust entity. The account's title names the trust and the trustee acting on its behalf; assets are managed for the benefit of named beneficiaries under the trust's governing document. Tax treatment depends on whether the trust is grantor or non-grantor and, for non-grantor trusts, simple or complex.
A trust protector is a non-trustee third party named in the trust document with specific powers to modify trust terms or replace trustees. Powers vary widely — common ones include: power to remove and replace trustees, power to modify distribution provisions, power to amend administrative provisions, power to add or remove beneficiaries (within constraints), and power to direct trustee actions on specific matters. The role is created and bounded by the trust document; not a default fiduciary role.
A variable annuity is a deferred annuity contract whose cash value is invested in subaccounts (similar to mutual funds) chosen by the holder. Optional rider guarantees provide minimum lifetime withdrawal, minimum accumulation, or minimum death benefit regardless of subaccount performance. The combination of investment exposure and rider guarantees produces contract-level dynamics that diverge from the underlying account value.
Venture Capital (VC) is equity investment in early-stage privately-held companies. Structured similarly to PE — fund vehicle with multi-year drawdown — but with longer hold periods (10–12 years) and far more skewed return distribution. Top-decile VC funds deliver 20%+ net IRRs; median funds deliver mediocre returns; a meaningful fraction lose principal. Stage-graded into Seed, Series A, B, C, D corresponding to company-development milestones.
A vesting schedule is the timeline over which equity compensation (RSUs, ISOs, NSOs, restricted stock awards) transfers from being a contingent grant to actual employee property. Standard structures include graded vesting with a cliff (most common in tech), monthly graded vesting (no cliff), milestone-based vesting (private startups), and performance-based vesting (executive compensation).
A wash sale is a transaction where a security is sold at a loss and substantially identical securities are repurchased within 30 days before or after — disallowing the loss for the current period under IRC §1091. The disallowed amount is added to the basis of the replacement lot, deferring (not eliminating) the tax benefit.
The wash sale adjustment is the basis modification under §1091(d) when a wash sale is triggered: the disallowed loss is added to the cost basis of the replacement lot, the holding period of the original lot carries over, and the deferred tax benefit is recovered when the replacement lot is eventually sold. The adjustment is mechanical — the loss is not eliminated, just deferred to the replacement lot's eventual disposition.