The vocabulary of
a complex household.
Plain-English definitions of the tax, equity-comp, trust, and investing terms a high-net-worth household actually deals with — written for you and the CPA you forward them to.
32 terms
83(b) Election
An election to be taxed on restricted equity at grant instead of as it vests — filed within 30 days, usually while the value is still low.
Alternative Minimum Tax (AMT)
A parallel tax system that recomputes your bill with fewer deductions — triggered most often by large ISO exercises, and owed when it exceeds your regular tax.
Asset Location
Placing each asset class in the account type where it's taxed most efficiently — bonds in tax-deferred, equities in taxable, high-growth in Roth.
Backdoor Roth IRA
Funding a Roth IRA indirectly — an after-tax traditional IRA contribution followed by a conversion — when your income is too high to contribute directly.
Capital Call
A private fund's demand for committed capital you previously pledged — often on short notice, so liquidity has to be staged for it.
Carried Interest
A fund manager's share of the profits — and a distinctive tax and reporting profile for those who hold it.
Concentration Risk
Outsized exposure to a single position — often employer stock — that can swing your whole net worth.
Cost Basis
What you paid for an asset (plus adjustments) — the figure gains and losses are measured against when you sell, gift, or bequeath it.
Donor-Advised Fund (DAF)
A charitable account you fund now for an immediate deduction — often with appreciated stock — then grant to charities on your own timeline.
Employee Stock Purchase Plan (ESPP)
An employer program to buy company stock at a discount, often with a look-back price — and holding-period rules that decide how the discount is taxed.
Grantor Trust
A trust whose income is taxed to the person who created it, even when the assets are held for others — the default for most revocable living trusts.
High-Net-Worth Individual (HNWI)
By common convention, someone with at least $1 million in investable (liquid) assets — cash and securities you could deploy, usually excluding your primary home.
Incentive Stock Options (ISOs)
Stock options with preferential tax treatment — capital-gains rates if you hold long enough, but exercising and holding can trigger the AMT.
IRMAA
Income-Related Monthly Adjustment Amount — a Medicare premium surcharge triggered by crossing income thresholds.
Irrevocable Trust
A trust that generally can't be changed once established — used for estate-tax and asset-protection planning.
Mega Backdoor Roth
Routing large after-tax 401(k) contributions into a Roth — far beyond the normal IRA limit — where the plan allows conversions or in-service rollovers.
Monte Carlo Simulation
Running thousands of randomized market scenarios to estimate the odds a financial plan succeeds — a probability range, not a single prediction.
Net Unrealized Appreciation (NUA)
A tax strategy for moving appreciated employer stock out of a 401(k) so growth is taxed at capital-gains rates instead of as ordinary income.
Non-Qualified Stock Options (NSOs)
Options taxed as ordinary income on the spread at exercise — no AMT preference like ISOs, but no preferential rate either.
Pro-Rata Rule
When you have pre-tax IRA dollars, a Roth conversion is taxed proportionally — you can't convert only the after-tax part.
QSBS (Section 1202)
Qualified Small Business Stock — gains can be excluded from federal tax, up to the greater of $15M (stock acquired after July 4, 2025) or 10× basis.
Qualified Charitable Distribution (QCD)
Donating directly from an IRA after age 70½ — the amount is excluded from taxable income and can count toward your required minimum distribution.
Quarterly Estimated Taxes
Pay-as-you-go quarterly tax payments for income that isn't subject to withholding — RSU vests, K-1 income, capital gains, and self-employment earnings.
Restricted Stock Units (RSUs)
Company shares that vest over time and are taxed as ordinary income at vest — whether or not you sell — with later moves taxed as capital gain or loss.
Revocable Living Trust
A trust you control and can change during your life — used mainly to avoid probate; assets stay in your taxable estate and income flows to your return.
Safe Withdrawal Rate (the 4% rule)
A rule of thumb for how much you can draw from a portfolio each year without running out — commonly cited near 4%, adjusted for horizon and markets.
Schedule K-1
The tax form that reports your share of income, deductions, and credits from a partnership, S-corp, or trust.
Step-Up in Basis
At death, an asset's cost basis resets to its fair-market value — erasing the unrealized gain for heirs.
Tax-Loss Harvesting (TLH)
Selling losing positions to realize losses that offset capital gains — and up to $3,000 of ordinary income.
Tenancy (JTWROS · TIC · Tenancy by Entirety)
How jointly-owned property is titled — JTWROS, tenancy in common, or tenancy by the entirety — which decides what happens to it on death or divorce.
Ultra-High-Net-Worth Individual (UHNWI)
By common convention, $30 million or more in investable assets — the tier where a family office and bespoke tax and estate planning become the norm.
Wash Sale
Selling a security at a loss and buying it (or something “substantially identical”) back within 30 days before or after the sale — which disallows the loss.