Masters in Business – At The Money: Tax Management for Investors

Date: December 31, 2025
Host: Barry Ritholtz (Bloomberg)
Guest: Bill Aronian, Director of Tax Services at Ritholtz Wealth Management

Overview

This episode of "At The Money" dives deep into the practicalities of tax management for investors. Host Barry Ritholtz is joined by Bill Aronian, a seasoned CPA and tax director, to unpack how smart tax strategies can significantly influence long-term investment outcomes. They discuss the hierarchy of financial priorities, tax diversification, advanced retirement account strategies, pitfalls around equity compensation, new tax law changes, and the critical intersection of tax and estate planning.

Key Discussion Points & Insights

1. The Role of Tax Management in Investing

• Control vs. Uncertainty

  • Unlike markets or asset returns, the tax code provides a framework investors can plan around in the short- to medium-term (until at least 2028 under current law).
  • "We can't control the market...but taxes, we have a set of rules and we can define our behavior based on those rules."
    — Bill Aronian, 03:44

• Hierarchy of Priorities

  • Asset allocation and security selection are important, but tax management offers tangible levers for investors to pull.

2. Tax Diversification & Asset Location

• Tax Buckets Explained

  • Pre-tax accounts: Traditional 401(k), IRAs
  • After-tax accounts: Brokerage accounts
  • Tax-free accounts: Roth IRAs/401(k)s

• Tax Diversification

  • Many investors understand asset diversification, but not tax diversification—the benefit of spreading investments across different tax treatments for flexibility, especially in retirement.
  • Example: Someone with all assets in a 401(k) faces taxable withdrawals with “no flexibility” (04:47).

3. Advanced Retirement Strategies: The Mega Backdoor Roth

• What is the Mega/Super Roth?

  • A way to put as much as $70K into retirement accounts (2025 limit), with part after-tax and then quickly convert that after-tax money to Roth for future tax-free growth (06:08).
  • Employers must allow this option.

• Mechanics

  • After maximizing traditional employee and employer contributions, remaining eligible contributions can be made after-tax and then converted to Roth.
  • "Go ask your CFO, go ask HR and see if you can implement the mega backdoor Roth strategy."
    — Bill Aronian, 08:06

• Roth Conversions vs. After-Tax Conversions

  • After-tax contributions converted to Roth are not taxed again.
  • Pre-tax conversions (deductible contributions) trigger taxes at the time of conversion (08:17).

4. Tax Traps in Equity Compensation

• Types of Equity Comp

  • RSUs, ISOs, NSOs, Employee Stock Purchase Plans—dubbed "alphabet soup."
  • RSUs: Taxed as income when vested, like a cash bonus.
  • Stock Options: Taxed on the spread between strike price and current market price when exercised (09:14).

• Common Pitfalls

  • Many employees underestimate the tax consequences, leading to surprise bills. "People don't feel stock, they feel cash...You're left with a big tax bill down the road."
    — Bill Aronian, 10:28

5. Managing Concentrated Stock Positions

• Concentration Risk

  • “If that accumulates to a point where a small move in the stock is keeping you up at night… you might want to diversify a little bit.”
    — Bill Aronian, 11:07
  • Decision to sell must balance tax costs and risk tolerance.

• Best Practices & New Tools

  • Direct indexing: Create tax losses to offset gains and help diversify.
  • Innovative structures (e.g., 351 exchanges): Bundle concentrated shares into an ETF for diversification. Tax basis does not change; defers, not eliminates, capital gains (12:18).
  • "Your basis is your basis. You can't change that."
    — Bill Aronian, 13:19

6. Tax Deferral Products & Step-Up in Basis

• 1031 Exchange Analogue for Securities

  • New financial products now allow investors to defer taxes on appreciated securities, similar to 1031 real estate exchanges (14:26).
  • These “champagne problems” allow for ongoing tax deferral, with heirs potentially receiving a basis step-up at death, erasing deferred gains.

• On Tax Deferral:

  • "It is not tax avoidance. Your basis stays low… You push the capital gain down the line."
    — Bill Aronian, 14:26
  • "Nothing solves tax problems like death."
    — Bill Aronian, 14:59

7. Recent (2025) Tax Law Changes

• Rates Held Steady

  • “The biggest change is what didn’t change at all…tax rates.”
    — Bill Aronian, 15:58
  • Without new law (OB3 Act), top rates would have risen 2.6%.

• Other Updates

  • SALT deduction cap raised from $10K to $40K for some.
  • More flexible timing and strategy around deductions.
  • Focus on bunching deductions (charitable, SALT) in years with highest income for optimal benefit.

8. Integrating Tax Planning & Estate Planning

• Unified Approach

  • For ultra-high-net-worth clients, estate and income tax planning should be combined, using strategies such as:
    • Strategic Roth conversions: Parents pay lower-rate tax now so heirs avoid higher-rate tax later.
    • SECURE Act 2.0: 10-year mandatory withdrawal for inherited IRAs, making Roth conversions increasingly useful.

• Example:

  • Parent (lower bracket) pays tax via Roth conversion to save daughter (doctor in NY, top bracket) money on inherited IRAs (17:29).

9. Looking Forward: Tax Planning for 2026 and 2027

• Timing is Key

  • “It’s about timing income…When can we pay tax at a lower rate than we might pay in the future?”
    — Bill Aronian, 19:19
  • Strategic about when to realize income or deductions to take advantage of lower brackets.

• Marginal Changes Compound

  • Small savings accrued through smart planning can “add up over decades.”

Notable Quotes & Memorable Moments

• On Tax Control:

  • “Control what you can control.”
    — Bill Aronian, 03:44

• On Mega Backdoor Roth:

  • “If you're listening and you're a high earner and you have some sway at your company, go ask your CFO, go ask HR and see if you can implement the mega backdoor Roth strategy.”
    — Bill Aronian, 08:06

• On Real Estate Parallels:

  • “Nothing solves tax problems like death.”
    — Bill Aronian, 14:59

Timestamps for Important Segments

• Hierarchy of Tax Priorities — 02:44–04:36
• Asset Location & Tax Diversification — 04:36–05:45
• Mega Backdoor Roth Explainer — 05:45–08:17
• Tax Traps in Equity Comp — 09:03–10:48
• Direct Indexing and Concentrated Positions — 12:06–13:49
• Tax Deferral Products — 13:49–15:46
• 2025 Tax Law Changes — 15:46–17:16
• Tax & Estate Planning Integration — 17:16–19:06
• Looking Ahead: 2026–2027 — 19:06–19:55

Takeaways

• Smart tax management can substantially impact investors' after-tax wealth.
• Tax strategies must be proactive, coordinated with both investment and estate plans, and adapted as laws change.
• Even small marginal improvements, when compounded over decades, add up to significant results.
• Partner closely with qualified professionals to ensure all planning opportunities are fully leveraged.