Client Deliverables
The tax-alpha asterisk.
A personalized-indexing strategy advertises a headline "tax alpha" of 5.04%. It is a real, audited figure. It is also computed at the highest tax bracket in the country — and almost nobody reading the brochure lives there. This examination re-tests the same claim at a household's actual bracket.
The question we actually answer
Tax alpha measures the value a loss-harvesting strategy adds by deferring or offsetting taxes. That value is only as large as the tax rate it is measured against. A marketed headline number is typically modeled at the top federal rates — roughly 40.8% on short-term gains and dividends, 23.8% on long-term gains. The saver reading it may be in a 10% ordinary bracket with a 0% long-term capital-gains rate. The benefit does not disappear at that bracket. It shrinks, in direct proportion to the rate.
So the examination is simple arithmetic: take the marketed alpha, and scale it by the ratio of the household's real rate to the rate the marketing assumed.
Re-tested at a 10% ordinary bracket against a figure modeled at ~40.8%, a marketed 5.04% tax alpha falls to roughly 1.24% — about one-quarter of the advertised number. Still real. Still worth banking over decades. Just not what the headline implies.
| Line | Marketed basis | Re-tested basis |
|---|---|---|
| Assumed tax rate | ~40.8% (top federal) | ~10% (illustrative) |
| Headline tax alpha (1-yr) | 5.04% | — |
| Scaling ratio | — | ≈ 10 / 40.8 |
| Bracket-adjusted alpha | — | ~1.24% |
| Sleeve size | Implied by 5.04% | Realistic at ~1.24% |
|---|---|---|
| $200,000 | ~$10,080 | ~$2,480 |
| $250,000 | ~$12,600 | ~$3,100 |
| $300,000 | ~$15,120 | ~$3,720 |
Illustrative figures. A marketed alpha modeled at a top bracket overstates the dollar benefit to a lower-bracket household by roughly the ratio of the two rates. Not a forecast or a recommendation of any product or provider.
"The number was real. The bracket it was sold at wasn't yours."
How the examination is built
- Read the asterisk. We find the footnote that states which tax rates the marketed alpha was modeled at — almost always the highest federal rates available that year.
- Establish the real bracket. We identify the household's actual marginal ordinary rate and long-term capital-gains rate, plus any state layer.
- Scale the claim. The marketed alpha is multiplied by the ratio of the real rate to the modeled rate, producing a bracket-honest estimate.
- Separate cash from structure. We distinguish the shrunken near-term dollar benefit from the durable structural value — a harvested-loss bank that can offset future realized gains for years.
- Note the state wrinkle. Where a state taxes capital gains, the loss bank can be worth more than the federal-only math suggests in any year a large gain is realized.
What this examination is — and is not
This is an examination of a marketed performance claim against a household's real tax situation. It is not a verdict on whether the strategy is good, and it is not advice to use or avoid it. It restores one missing piece of context — the bracket — so the household can read the brochure with clear eyes. The decision remains entirely theirs.
Want this checked against your actual account?
This examination shows one way money can quietly leave a portfolio. If you want us to examine what may be happening in your actual accounts, request a confidential fee review.
Related examinations
The Windfall-Structure Examination — How a windfall-structuring framework guards against the predictable human mistakes that lose most large sums.
The Deployment Examination — Whether to invest a large sum all at once or ease it in — and why deploying all at once beat spreading it out roughly 70% of the time historically.
The Sequence-Risk Examination — Whether a portfolio's income survives a market crash that arrives early, and whether a cash reserve absorbs the shock.