Earlier in my career I worked at the Federal Reserve Bank of Boston, where I was responsible for supervising a large Boston based asset manager and their securities lending business. One thing high on our list were synthetic ETFs. The reason we were concerned about these vehicles actually had nothing to do with tax laws. The greater concern was counterparty risk. Synthetic ETFs are constructed with derivatives contracts. In the case of BOXX, where the promoter is trying to replicate T-Bill returns, the counterparty risk is not the US government. Rather, the counterparties in synthetic ETFs are those on the other side of the underlying derivatives contracts. Aside from the tax issues, which Rob does an excellent job explaining, an investor in BOXX needs to understand the counterparty risk of the ETF.
Wasn’t that part of the reason why LTCM failed also? The counterparties figured out what arbitrage game LTCM was playing and did it too. The spreads they counted on no longer worked.
@@josh9231 BOXX doesn't seems to be a spread play, but a tax play. Even if the spread is gone (not much spread were there after fees, anyway), the tax benefit is still material.
Rob, thanks for putting together this video. I was one of the many that had previously emailed you on this fund. For now glad I held off on investing in this.
Thank you very much for your time, energy and interpretative skills Rob. This was not on my radar at all, but in time, I believe it would have been, so thank you for this video. Much appreciated!
I went through more or less the same analysis when I read the exact same Forbes article and concluded the same thing. Generally, the objective of buying T-bill is first and foremost to minimize risk. If something is claiming to do better return without adding any material risk, of course, it'll attract attention. Do this with some sort of supposed tax loophole and make it widely available by ETF so that people who aren't option experts can exploit it--it is very likely to attract unnecessary audit risk to your tax return. Once the auditor notices something like this ETF, they might take extra care in finding what else might be potentially fishy. Then you add up the expense ratio and the bid-ask spread of the ETF itself, the potential net gain over buying T-Bills and Vanguard MMF's seems rather low compared to the net risk involved.
I am in USFR. I looked into using BOXX instead, and came to the same conclusion as Rob. I do not want to deal with paying an accountant to amend years of returns and pay back taxes/penalties for a little bump. I am no tax lawyer, but the purpose of 1258 seems to be to limit shenanigans just like those employed by BOXX.
You missed the three real important considerations here: 1) The 60/40 long-term/short-term capital gains taxation is on distributions only. BOXX had no distributions in 2023; only time will tell if it has any distributions at all. 2) Some states which impose ordinary income tax waive that tax for Treasuries, which is important when comparing BOXX’s total returns to that of Treasuries. NJ is one. 3) The current expense ratio of 0.19% is based on a fee waiver that allows Alpha Architect to raise that ratio to 0.39% as of 1/1/25, which they may or may not do.
Or, if you don't live in a state at all... greetings from (an American in) Switzerland! Fun fact, they generally don't tax cap gains here, but dividends are taxed normally. Yes, I might have to pay US tax on my gains, but in the lowest brackets. Anyway, you make a good point in that the details, and your personal situation, are important to keep in mind.
Exactly. And because it's held inside an ETF, that gives the fund more firepower to avoid having to make those distributions. An important key with this strategy is the ETF structure.
Elm wealth had an excellent article that mentions another concern about $BOXX, that being the credit risk of the OCC as opposed to t-bills. $Boxx is currently 10% of the assets of the OCC, so this seems like it could potentially be a very real concern as $boxx continues to accrue assets.
Great analysis, Rob. But one clarification. I believe the 60/40 rule only applies on gains that the fund itself realizes from equity options transactions inside the fund. If the fund realizes those gains, they will have to make distributions to fund shareholders, and those distributions will be taxed at the 60/40 blended rate. But, the "ETF" structure, and the "creation/redemption" ability of ETFs, should give the fund the capacity to avoid having to make those distributions. If a fund shareholder sells shares on her own, and held those shares for more than one year, then it's my understanding that the gains would be taxed as purely long-term capital gains.
This is my understanding as well- that the 60/40 taxation is on distributions only. If an investor holds and sells after 366 days, the capital gain should be taxed as 100% long term gain. The only question I still have is if the investor sells at less than 365 days. Will that gain be taxed @ 60/40, or 100% short term capital gain?
@RobBerger thank you for digging into this and presenting your analysis for the rest of us so we can better understand it. Going forward I’ll refer to your candid explanation for us as “Rob-izing” a complicated subject matter.😊
6:59 The effective state income tax in California is actually less than 6% if your income is below $101k (even though the marginal rate is more) filing single, so most Americans would have to pay more state income tax in Virginia than in California.
I think the main point for me to something like BOXX would be tax rate arbitrage. If I'm currently in a very high tax bracket and going to be in a much lower one in a few years, and I'm already maxing all retirement accounts, BOXX could defer the tax until I'm in the lower bracket. Of course if the IRS decides they can't do that, it doesn't help at all.
Morningstar lady said BOXX was probably okay. You pay taxes on the gains when you sell BOXX, so the advantage is you have control over when you are taxed instead of every year. The technique is common in option traders, BOXX is just making it more widely available. Most internal ETF swaps to avoid capital gains could be questioned for the samer reason. IRS has not yer clearly defined the substantially identical security rule yet after decades, so who really understands the tax code?
Hey Rob, This morning I noticed the NAV of BOXX declined more than I thought. I went to Morningstar, I saw there were short and long term capital gains distributions. My brokerage account confirmed this. So the deal wasn't quite as good as thought. But some of the distributions are at a favorable tax rate.
I agree. The Morningstar video seemed to me to be more of a sales pitch. It glossed over giving a better description of the IRS risk nor did it point out the 60/40 short/long term capital gains treatment.
My life changed too when I started doing this and putting money in stocks. The first few years it as really great, but this year I haven't felt like my portfolio is doing well. I have lost more than $40,000 from my portfolio the past four months, and it's now very worrisome.
The year has been really rough for everybody. But I've been able to cushion the effect though. Have you thought of using an investment advisor? They can make you good money especially during uncertain times like this.
It absolutely reduces your complexity. Literally just buy and sell an ETF, it can’t get any more simple. Only way it gets more complicated is if the tax treatment changes.
I feel like it's still worth the tax risk. Worst case scenario is it gets classified as ordinary income and I'm mainly back where I started minus a few basis points. I say this though while living in a state with no income tax. The potential upside of being able to defer taxes + have it be tax loss harvested away means the savings are actually quite significant and worth pursuing.
@@derMikester Every ETF has management fees? TBIL was 0.15 and SGOV was 0.09. BOXX will be at 0.39 and if you're in the 32% tax bracket you're saving ~0.50 in taxes if their tax interpretation is correct. Not to mention box spreads usually have a slightly higher return than T-Bills on average so you should lose maybe 0.10 on average compared to a normal T-Bill ETF? If you tax loss harvest you're saving ~1.60 in taxes alone.
Rob, thanks for another informative video. One question… wouldn’t the 60/40% capital gains tax rates apply to distributions only? If you sell the shares of the fund, the long/short term rates would be dictated by your holdings period.
If interest rate drop can result in losing money, then there's more than time in the characterization of long vs short term and shouldn't be recharacterized
Sound advice and approach! Question, are dividends from funds like SGOV that hold TBills exempt from state tax? Or do you need to hold the actual TBill directly to get that tax benefit?
@vehoshiraptor, usually the mutual fund or etf company will publish what fraction of the fund's distributions were derived from U.S. government debt obligations so the recipient can know what portion would be exempt from state and local taxes. This is usually published during the tax season.
I appreciate you taking the effort to explain this Fund, but I think you’re an analysis is incorrect. Technically the underlying positions will be taxed according to 1256 as 60% long-term 40% short term Gaines. But since this transaction is taking place within an ETF rapper as long as you don’t sell ETF, there’s no tax consequence so effectively this can be 100% long-term capital gains . In addition as a extra level of safety in case, the IRS wouldn’t invalidate the ETF forever they are also harvesting a lot of losses on some of their holdings within the structure
How does BOXX not have capital gains distributions? By law, don't ETFs have to distribute realized capital gains? Do the long and short positions cancel out? And don't they have to pay out the interest earned pro-rata every year too?
Only distributions are 60/40. Only long term capital gains when you sell because the ETF wrapper and exchange of securities. That's the benefit... So far there have been no distributions
@JoeCoz17, you missed the point. Your capital gains after selling would indeed be characterized as 60/40 as per the prospectus, not just for distributions. The ETF wrapper isn't shielding the investor from this characterization of the gains. That is the whole point of this video and the Forbes article.
@@warsurplus there is a risk that it could be (IRS will intervene and recharacterize) but the way the ETF is structured now is that when you sell shares it's just LTCG
@@JoeCoz17 No, go back and listen to what Rob says at time 9:40, he's talking about this 6040 treatment for not just distributions but for capital gains when you sell, not just distributions. I know the wording in the prospectus can be taken to mean only distributions, but that's not what Rob is saying here.
@@JoeCoz17 I noticed that too, but he(Rob) and the Forbes article author seem to think it would apply to gains. I'm not sure which is correct. Thanks for your civil reply.
If you want to hold a cash type of asset for a while and NOT pay tax until you "sell", then buy a MYGA... a cd type of investment from insurance companies.. unlike a CD, interest is tax deferred until maturity.. and even then it can be rolled over if you want into another MYGA tax deferred. IF you are going to retire in x years and be in a lower bracket then, then this can have some benefit. Canvas annuity direct buy 6.5% for 7 years is very attractive now given the outlook for rates from the fed to drop. Backstopped by your state's insurance commission to each states limit, usually 250 k
If and when the IRS makes a determination, you the investor would be subject to the determination and have to pay the tax consequences of that determination for the effective tax year. Since AA included the tax risk in their prospectus, giving notice of the risk to investors, I would find it difficult to believe investors could sue AA with any effect. On any IRS ruling of the tax treatment: an investor or investors could not sue the IRS aka the US on the IRS's determination, until after a harm was done. Which means, the investor would have to pay the tax bill and then find a Constitutional question of the IRS determination to base a lawsuit. Interesting question would be if there aren't any buyers for BOXX if a determination was made negating the tax efficiency. Although, I would think that people with significant capital loss carryforwards could be interested regardless of the taxes.
@@hanwagu9967 partially true. If the occurrence happened 3 years after they filed and did not get a statute extension IRS is shit out of luck. It happens. I was an IRS agent for 9’years back in my youth.
The inventors of this BOXX strategy should talk to John Merriweather and Victor Haghani about how well counting on bond spreads to do what you expect them to do and why Long Term Capital Management is not around anymore. I trust T- bills , much much safer.
I figured it out. They posted LT/ST Capital Gains. But, I'm confused on that. I thought there was not supposed to be any Capital Gains until we sell it. So, I guess I still have an open question. Does anyone know why they posted Capital Gains?
Sounds to complicated, almost gimmicky, to me. I like keeping it simple. My "growth" portion is in stocks/funds, the "safe" money has already done it's work. I want it boring and simple, well understood, and safe to rely on.
Boxx == RISK get yourself audited by the IRS. Just open a Treasury Direct acct and buy Tbills. No state income tax guaranteed. Tux return in boxx 3.xx. I’ve been rolling 4wk 8 wk and 13wk Tbills all 2024 at a vet 5%. Plus zero management fee. Voila!
I bought one share to see what happens. I will be selling that one share in the morning. I ain't going to prison for one share of some Wall Street Billionaire's tax cheat scheme.
Thanks for covering BOXX, but I disagree with you. I find BOXX a very valuable part on my non-retirement assets. One, it reduces AGI, because it defers federal and state taxes until distributions are taken. Moreover, even a 60/40 tax consequence is better than 100%, which is the case of a MMF or SGOV. Two, it reduces your AGI and consequently increases your ACA subsidy if retired before the age of 65. Essentially, BOXX gives you a MMF return without the immediate tax burden and lower AGI benefit. Worse case, the IRS treats it like a MMF and taxes the returns like ordinary income. What am I missing? I read counterparty risk, what does that entail?
It doesn't lower your AGI. If you invest $20k in BOXX, your AGI doesn't decrease by $20k. If you have no income you have no income, that isn't lowering your AGI. Your arugment is if you have no income then you lower your AGI. 60/40 is on distrubtions like dividends and interest which BOXX has not paid out. You have to hold over a year to get LT treatment, until IRS shuts that down. You don't pay state and local taxes on actual t-bills. Worse case is you are getting taxed ordinary income having to amend past tax returns and paying those costs to do so. BOXX has underperformed compared to 1-3mo tbills and comes with exp ratio and still taxable at state and local, albeit currently only at redemption. It is overly complicated compared to just buying a t-bill or t-note or t-bond. Another risk is that you can't sell because there aren't any buyers after the IRS issues a determination counter to AA's current tax efficiency guess. I suppose the only people who would want this then are those with large enough cap loss carryovers.
@@hanwagu9967 it lowers your AGI vs. having money invested in a MMF because the MMF income is included in your AGI, but I understand your point. Also, good point about future buyers in light of IRS rule changes.
Earlier in my career I worked at the Federal Reserve Bank of Boston, where I was responsible for supervising a large Boston based asset manager and their securities lending business. One thing high on our list were synthetic ETFs. The reason we were concerned about these vehicles actually had nothing to do with tax laws. The greater concern was counterparty risk. Synthetic ETFs are constructed with derivatives contracts. In the case of BOXX, where the promoter is trying to replicate T-Bill returns, the counterparty risk is not the US government. Rather, the counterparties in synthetic ETFs are those on the other side of the underlying derivatives contracts. Aside from the tax issues, which Rob does an excellent job explaining, an investor in BOXX needs to understand the counterparty risk of the ETF.
So the counterparty is the options clearing corporation that guarantees options contracts? That doesn't sound too bad to me.
Wasn’t that part of the reason why LTCM failed also? The counterparties figured out what arbitrage game LTCM was playing and did it too. The spreads they counted on no longer worked.
That is better counterparty risk than the US government
@@josh9231 BOXX doesn't seems to be a spread play, but a tax play. Even if the spread is gone (not much spread were there after fees, anyway), the tax benefit is still material.
Rob, thanks for putting together this video. I was one of the many that had previously emailed you on this fund. For now glad I held off on investing in this.
Excellent analysis and discussion Rob and I agree with your conclusion.
Thank you very much for your time, energy and interpretative skills Rob. This was not on my radar at all, but in time, I believe it would have been, so thank you for this video. Much appreciated!
Thanks for the video. I agree with you it seem fairly complicated. I don't like complicated. I try to keep it simple cause I'm stupid.
lol my thoughts exactly
Timely video. I was planning on emailing Rob about this.
I went through more or less the same analysis when I read the exact same Forbes article and concluded the same thing. Generally, the objective of buying T-bill is first and foremost to minimize risk. If something is claiming to do better return without adding any material risk, of course, it'll attract attention. Do this with some sort of supposed tax loophole and make it widely available by ETF so that people who aren't option experts can exploit it--it is very likely to attract unnecessary audit risk to your tax return. Once the auditor notices something like this ETF, they might take extra care in finding what else might be potentially fishy. Then you add up the expense ratio and the bid-ask spread of the ETF itself, the potential net gain over buying T-Bills and Vanguard MMF's seems rather low compared to the net risk involved.
Bob, spot on. I’m always amazed by the number of structured products that come out each year with the sole purpose in trying to game the system..
Thanks Rob for another very grounded and easy-to-understand overview of an investment product from your perspective.
I am in USFR. I looked into using BOXX instead, and came to the same conclusion as Rob. I do not want to deal with paying an accountant to amend years of returns and pay back taxes/penalties for a little bump. I am no tax lawyer, but the purpose of 1258 seems to be to limit shenanigans just like those employed by BOXX.
You missed the three real important considerations here:
1) The 60/40 long-term/short-term capital gains taxation is on distributions only. BOXX had no distributions in 2023; only time will tell if it has any distributions at all.
2) Some states which impose ordinary income tax waive that tax for Treasuries, which is important when comparing BOXX’s total returns to that of Treasuries. NJ is one.
3) The current expense ratio of 0.19% is based on a fee waiver that allows Alpha Architect to raise that ratio to 0.39% as of 1/1/25, which they may or may not do.
Or, if you don't live in a state at all... greetings from (an American in) Switzerland! Fun fact, they generally don't tax cap gains here, but dividends are taxed normally.
Yes, I might have to pay US tax on my gains, but in the lowest brackets. Anyway, you make a good point in that the details, and your personal situation, are important to keep in mind.
Exactly. And because it's held inside an ETF, that gives the fund more firepower to avoid having to make those distributions. An important key with this strategy is the ETF structure.
I agree with your take and conclusions about BOXX Rob! Keeping it simple
Thanks Rob. I have been hearing about and looking into this fund and this helps.
Elm wealth had an excellent article that mentions another concern about $BOXX, that being the credit risk of the OCC as opposed to t-bills. $Boxx is currently 10% of the assets of the OCC, so this seems like it could potentially be a very real concern as $boxx continues to accrue assets.
Great analysis, Rob. But one clarification. I believe the 60/40 rule only applies on gains that the fund itself realizes from equity options transactions inside the fund. If the fund realizes those gains, they will have to make distributions to fund shareholders, and those distributions will be taxed at the 60/40 blended rate. But, the "ETF" structure, and the "creation/redemption" ability of ETFs, should give the fund the capacity to avoid having to make those distributions. If a fund shareholder sells shares on her own, and held those shares for more than one year, then it's my understanding that the gains would be taxed as purely long-term capital gains.
This is my understanding as well- that the 60/40 taxation is on distributions only. If an investor holds and sells after 366 days, the capital gain should be taxed as 100% long term gain. The only question I still have is if the investor sells at less than 365 days. Will that gain be taxed @ 60/40, or 100% short term capital gain?
Correct.
@RobBerger thank you for digging into this and presenting your analysis for the rest of us so we can better understand it. Going forward I’ll refer to your candid explanation for us as “Rob-izing” a complicated subject matter.😊
6:59 The effective state income tax in California is actually less than 6% if your income is below $101k (even though the marginal rate is more) filing single, so most Americans would have to pay more state income tax in Virginia than in California.
I think the main point for me to something like BOXX would be tax rate arbitrage. If I'm currently in a very high tax bracket and going to be in a much lower one in a few years, and I'm already maxing all retirement accounts, BOXX could defer the tax until I'm in the lower bracket. Of course if the IRS decides they can't do that, it doesn't help at all.
Morningstar lady said BOXX was probably okay. You pay taxes on the gains when you sell BOXX, so the advantage is you have control over when you are taxed instead of every year. The technique is common in option traders, BOXX is just making it more widely available. Most internal ETF swaps to avoid capital gains could be questioned for the samer reason. IRS has not yer clearly defined the substantially identical security rule yet after decades, so who really understands the tax code?
Thank you for your outstanding research and assistance!
Hey Rob, This morning I noticed the NAV of BOXX declined more than I thought. I went to Morningstar, I saw there were short and long term capital gains distributions. My brokerage account confirmed this. So the deal wasn't quite as good as thought. But some of the distributions are at a favorable tax rate.
10x better than the video Morningstar put out to basically advertise it
@@slimdawgwoof I was disappointed with Morningstar for that
I agree. The Morningstar video seemed to me to be more of a sales pitch. It glossed over giving a better description of the IRS risk nor did it point out the 60/40 short/long term capital gains treatment.
Thank you Rob. It sounds complicated and too good to be true.
You’re right. The uncertainty as to the ultimate tax treatment coupled with the state tax exemption on T-Bills doesn’t seem to warrant the risk.
great analysis and very well explained ! thanks
My life changed too when I started doing this and putting money in stocks. The first few years it as really great, but this year I haven't felt like my portfolio is doing well. I have lost more than $40,000 from my portfolio the past four months, and it's now very worrisome.
The year has been really rough for everybody. But I've been able to cushion the effect though. Have you thought of using an investment advisor? They can make you good money especially during uncertain times like this.
Oh, really? I have never thought of that as an option. Can I ask who it is you've been working with? I bet I could use some help myself.
Thank you for the lead. I searched her up, and I have sent her an email. I hope she gets back to me soon.
Not a big deal on 5million
The end was my favorite part. 😂 complexity who needs that🎉😂
That one year chart is insane. It’s a 45 degree slope. Excellent analysis. I’ll just stick with VMFXX.
A chart of your VMFXX holdings with dividends reinvested would have almost the exact same slope.
@@TonyCox1351 no. It’s been steady and flat for about 18 months.
Great analysis. Thank you.
Great video as usual! There is a saying in software engineering that perfectly applies to investment: KISS, Keep it simple, stupid!
I buy T-Bills to reduce my risk and complexity. This does neither of those things. I'm sure it's right for someone, but that someone isn't me.
Buying t-bills is so easy too. I have been telling people about this strategy for a few years now and everyone laughs at me. I don't get it.
It absolutely reduces your complexity. Literally just buy and sell an ETF, it can’t get any more simple. Only way it gets more complicated is if the tax treatment changes.
I feel like it's still worth the tax risk. Worst case scenario is it gets classified as ordinary income and I'm mainly back where I started minus a few basis points. I say this though while living in a state with no income tax.
The potential upside of being able to defer taxes + have it be tax loss harvested away means the savings are actually quite significant and worth pursuing.
Plus a management fee deduction
@@derMikester Every ETF has management fees? TBIL was 0.15 and SGOV was 0.09. BOXX will be at 0.39 and if you're in the 32% tax bracket you're saving ~0.50 in taxes if their tax interpretation is correct. Not to mention box spreads usually have a slightly higher return than T-Bills on average so you should lose maybe 0.10 on average compared to a normal T-Bill ETF? If you tax loss harvest you're saving ~1.60 in taxes alone.
Thank you for excellently breaking this down.
Thanks for a great video Rob.
Rob, thanks for another informative video. One question… wouldn’t the 60/40% capital gains tax rates apply to distributions only? If you sell the shares of the fund, the long/short term rates would be dictated by your holdings period.
@sal21074, no, that is the whole point. Your gains would be characterized as the prospectus points out regardless of your holding period.
@@warsurplus How will the 1099-B reflect that, then? The ETF sales I've had in the past show only the net sales proceeds. Thanks!
Please cover LIRP (Life Insurance Retirement Plan) as a way to save taxes in retirement.
Who is it for? Pros and Cons?
If interest rate drop can result in losing money, then there's more than time in the characterization of long vs short term and shouldn't be recharacterized
Thorough as usual!!!
Sound advice and approach! Question, are dividends from funds like SGOV that hold TBills exempt from state tax? Or do you need to hold the actual TBill directly to get that tax benefit?
@vehoshiraptor, usually the mutual fund or etf company will publish what fraction of the fund's distributions were derived from U.S. government debt obligations so the recipient can know what portion would be exempt from state and local taxes. This is usually published during the tax season.
Good analysis
I appreciate you taking the effort to explain this Fund, but I think you’re an analysis is incorrect. Technically the underlying positions will be taxed according to 1256 as 60% long-term 40% short term Gaines.
But since this transaction is taking place within an ETF rapper as long as you don’t sell ETF, there’s no tax consequence so effectively this can be 100% long-term capital gains .
In addition as a extra level of safety in case, the IRS wouldn’t invalidate the ETF forever they are also harvesting a lot of losses on some of their holdings within the structure
thanks for this video, very helpful
How does BOXX not have capital gains distributions? By law, don't ETFs have to distribute realized capital gains? Do the long and short positions cancel out? And don't they have to pay out the interest earned pro-rata every year too?
just picked up some BOXX
Only distributions are 60/40. Only long term capital gains when you sell because the ETF wrapper and exchange of securities. That's the benefit... So far there have been no distributions
@JoeCoz17, you missed the point. Your capital gains after selling would indeed be characterized as 60/40 as per the prospectus, not just for distributions. The ETF wrapper isn't shielding the investor from this characterization of the gains. That is the whole point of this video and the Forbes article.
@@warsurplus there is a risk that it could be (IRS will intervene and recharacterize) but the way the ETF is structured now is that when you sell shares it's just LTCG
@@JoeCoz17 No, go back and listen to what Rob says at time 9:40, he's talking about this 6040 treatment for not just distributions but for capital gains when you sell, not just distributions. I know the wording in the prospectus can be taken to mean only distributions, but that's not what Rob is saying here.
@@warsurplus the prospectus says distributions he spoke wrong
@@JoeCoz17 I noticed that too, but he(Rob) and the Forbes article author seem to think it would apply to gains. I'm not sure which is correct. Thanks for your civil reply.
Thank you, question answered. Morningstar should have done better research before posting their video.
yeah, the video sounded like an ad for AlphaArchitect.
why not just buy your own box spread? It is not that complicated.
Nice research
If I need a lawyer (or retired one😉) to find out how my returns will be taxed, it's definitely a pass for me.
Thanks Rob!
Why did BOXX go down .28 about a 1/4 percent on 8/13/24 ?
You don't see the complexity in treasury bills? Is it as simple as everybody thinks it is
If you want to hold a cash type of asset for a while and NOT pay tax until you "sell", then buy a MYGA... a cd type of investment from insurance companies.. unlike a CD, interest is tax deferred until maturity.. and even then it can be rolled over if you want into another MYGA tax deferred. IF you are going to retire in x years and be in a lower bracket then, then this can have some benefit. Canvas annuity direct buy 6.5% for 7 years is very attractive now given the outlook for rates from the fed to drop. Backstopped by your state's insurance commission to each states limit, usually 250 k
BOXX issuers know it probably won’t hold up but are betting it will be tied up in court for years and they can reap in the fees.
If and when the IRS makes a determination, you the investor would be subject to the determination and have to pay the tax consequences of that determination for the effective tax year. Since AA included the tax risk in their prospectus, giving notice of the risk to investors, I would find it difficult to believe investors could sue AA with any effect. On any IRS ruling of the tax treatment: an investor or investors could not sue the IRS aka the US on the IRS's determination, until after a harm was done. Which means, the investor would have to pay the tax bill and then find a Constitutional question of the IRS determination to base a lawsuit. Interesting question would be if there aren't any buyers for BOXX if a determination was made negating the tax efficiency. Although, I would think that people with significant capital loss carryforwards could be interested regardless of the taxes.
@@hanwagu9967 partially true. If the occurrence happened 3 years after they filed and did not get a statute extension IRS is shit out of luck. It happens. I was an IRS agent for 9’years back in my youth.
This is interesting. Thanks
Well, if it’s in an IRA, no immediate taxes.
The inventors of this BOXX strategy should talk to John Merriweather and Victor Haghani about how well counting on bond spreads to do what you expect them to do and why Long Term Capital Management is not around anymore. I trust T- bills , much much safer.
Rob isn't "boxed" in!
Exactly, he thinks outside the BOXX.
Anyone know why it took a dip of ~$0.23 in one day on August 13th?
I figured it out. They posted LT/ST Capital Gains. But, I'm confused on that. I thought there was not supposed to be any Capital Gains until we sell it. So, I guess I still have an open question. Does anyone know why they posted Capital Gains?
Really nice review of BOXX. I won't be buying it. Seems like good old t-bills is the way to go.
Does $BOXX incur K-1 paperwork?
No. It's not structured as a partnership.
Sounds to complicated, almost gimmicky, to me. I like keeping it simple. My "growth" portion is in stocks/funds, the "safe" money has already done it's work. I want it boring and simple, well understood, and safe to rely on.
Boxx == RISK get yourself audited by the IRS. Just open a Treasury Direct acct and buy Tbills. No state income tax guaranteed. Tux return in boxx 3.xx. I’ve been rolling 4wk 8 wk and 13wk Tbills all 2024 at a vet 5%. Plus zero management fee. Voila!
It's good if you otherwise would have capital losses
If it's not broken don't fix it.
Glorified bond fund. PASS.
If you don’t understand it, don’t invest in it! I’m out
First!!!!!!!
You win!
I bought one share to see what happens. I will be selling that one share in the morning. I ain't going to prison for one share of some Wall Street Billionaire's tax cheat scheme.
Thanks for covering BOXX, but I disagree with you. I find BOXX a very valuable part on my non-retirement assets. One, it reduces AGI, because it defers federal and state taxes until distributions are taken. Moreover, even a 60/40 tax consequence is better than 100%, which is the case of a MMF or SGOV. Two, it reduces your AGI and consequently increases your ACA subsidy if retired before the age of 65. Essentially, BOXX gives you a MMF return without the immediate tax burden and lower AGI benefit. Worse case, the IRS treats it like a MMF and taxes the returns like ordinary income. What am I missing? I read counterparty risk, what does that entail?
It doesn't lower your AGI. If you invest $20k in BOXX, your AGI doesn't decrease by $20k. If you have no income you have no income, that isn't lowering your AGI. Your arugment is if you have no income then you lower your AGI. 60/40 is on distrubtions like dividends and interest which BOXX has not paid out. You have to hold over a year to get LT treatment, until IRS shuts that down. You don't pay state and local taxes on actual t-bills. Worse case is you are getting taxed ordinary income having to amend past tax returns and paying those costs to do so. BOXX has underperformed compared to 1-3mo tbills and comes with exp ratio and still taxable at state and local, albeit currently only at redemption. It is overly complicated compared to just buying a t-bill or t-note or t-bond. Another risk is that you can't sell because there aren't any buyers after the IRS issues a determination counter to AA's current tax efficiency guess. I suppose the only people who would want this then are those with large enough cap loss carryovers.
@@hanwagu9967 it lowers your AGI vs. having money invested in a MMF because the MMF income is included in your AGI, but I understand your point. Also, good point about future buyers in light of IRS rule changes.
Any Melee players in here?