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Financial Glossary

Plain-language guides on the financial topics that matter most.

Personal Finance Foundations

Cash Flow

The difference between money coming in and money going out — and why the gap between them, not your income, determines how fast you build wealth.

Net Worth

Why a dollar in a traditional 401(k) is not the same as a dollar in a Roth IRA, whether DAFs and irrevocable trusts belong on your balance sheet, and how to think about Social Security in your net worth calculation.

Liquid Net Worth

Liquid net worth is the subset of total net worth you can access without penalty within days — cash, taxable brokerage, and Roth contributions. Learn what counts as liquid, what doesn't, and why it is the number that determines early retirement feasibility, emergency resilience, and tax planning flexibility.

Financial Projections

How long-term projections — with tax analytics, account mix modeling, and conservative assumptions — help families set direction, evaluate tradeoffs, and make major decisions with a complete picture rather than just today's numbers.

Inflation

Why inflation exists, historical CPI levels from the 1966–82 Great Inflation to the 2022 peak of 9.1%, how the Federal Reserve uses interest rates and quantitative tightening to fight inflation, and how rising prices affect early retirement portfolios — equity valuations, bond prices, healthcare costs, Social Security COLAs, and TIPS strategy.

Tax Planning

FICA Taxes

How FICA works — Social Security at 6.2% up to the annual wage base, Medicare at 1.45% on all wages, the 0.9% Additional Medicare Tax for dual-income couples above $250,000, self-employment tax for consultants and the S-corp strategy, why FICA disappears entirely on investment income in retirement, and how early retirement affects Social Security benefit calculations.

Alternative Minimum Tax (AMT)

How the AMT runs parallel to regular income tax, the AMT exemption and phase-out thresholds, why the ISO bargain element is the most common AMT trigger for tech workers, the AMT credit that recovers taxes paid in future years, and strategies to exercise ISOs without an unexpected six-figure tax bill.

Adjusted Gross Income (AGI)

How AGI is calculated from gross income and above-the-line deductions, and how it controls ACA health insurance subsidies, the 3.8% Net Investment Income Tax, IRMAA Medicare surcharges, Social Security benefit taxation, Roth IRA eligibility, and the 0% capital gains rate — with AGI management strategies for tech workers in accumulation and early retirement.

Ordinary Income Taxes

How federal brackets actually work, what RSU vesting income and bonuses cost at combined rates up to 53% in California, why Washington's no-income-tax advantage saves $37,000–$52,000 a year at senior levels, and how 401(k) contributions, HSAs, and backdoor Roth reduce ordinary income.

Capital Gains Taxes

Federal short-term and long-term rates, California's ordinary income treatment, Washington's 7%–9.9% graduated capital gains tax, RSU holding period decisions, ISO QSBS exclusions, tax-loss harvesting, and concentrated stock strategies.

Tax-Loss Harvesting

How realizing losses in your taxable account offsets capital gains, the wash-sale rule and how to avoid it, why short-term losses are more valuable than long-term ones, and the seven mistakes that cost investors the most.

Net Investment Income Tax (NIIT)

Why the NIIT doesn't apply when you sell RSUs immediately at vest, how the 'lesser of' rule determines your actual exposure, and the strategies — exchange funds, DAFs, CRUTs, Section 351 exchanges — for diversifying concentrated stock without triggering it.

Exchange Fund

How a Section 721 contribution to an exchange fund defers capital gains and NIIT on concentrated stock, the seven-year holding requirement, the 20% illiquid asset rule, who qualifies (accredited investors, $1M–$5M minimums), RSU eligibility, and how to compare the deferral benefit against fund fees and illiquidity.

Tax-Friendly States for Retirees

How retiring in Texas, Florida, Nevada, Arizona, or Wyoming reduces state income tax, capital gains tax, and estate tax — with side-by-side comparisons for FAANG retirees, Washington's capital gains and estate tax traps, and what domicile change actually requires.

Required Minimum Distributions (RMDs)

What RMDs are, when they start, how they are calculated, and strategies to minimize their tax impact in retirement.

Cost Basis

How cost basis is established for RSUs, ISOs, NSOs, and ESPP shares; why brokers frequently under-report basis on 1099-Bs; specific identification vs. FIFO; wash-sale adjustments; stepped-up basis at death; and how to harvest capital gains at 0% in the early retirement years before Social Security and RMDs raise your income.

Kiddie Tax

How the kiddie tax taxes children's investment income above $2,700 at the parent's marginal rate, who it applies to through age 23, the strategies that minimize its impact during minor years, and how early retirement lowers the kiddie tax rate — plus when the tax expires and how to harvest UTMA gains at the child's 0%–15% rate afterward.

Tax-Advantaged Accounts

401(k) Plans

How 401(k) pre-tax, Roth, and after-tax contributions work, how they reduce taxable income, and how plans compare at Google, Microsoft, Apple, and more.

Roth Conversion

How Roth conversions work, the bracket-filling strategy for early retirees, the conversion ladder for penalty-free access before 59½, how ACA subsidies and IRMAA interact with conversion income, step-by-step TurboTax reporting, the pro-rata rule trap, and how financial projections determine the optimal annual conversion amount.

Backdoor Roth IRA

How to contribute to a Roth IRA when your income exceeds the limit — including the pro-rata rule, Form 8606, and the mega backdoor Roth strategy.

Mega Backdoor Roth

How after-tax 401(k) contributions and in-plan Roth conversions let high earners move far more than the standard IRA limit into tax-free accounts — which plans support it, how to set it up, and how it compares to the standard backdoor Roth.

Roth IRA Income Limits

Where the phase-out begins, how MAGI is calculated for this purpose, and why the backdoor Roth exists for high earners above the threshold.

Roth IRA Contribution Limits

How much you can put into a Roth IRA in 2026 — the $7,500 per-person limit, the $1,100 catch-up for age 50+, how the income phase-out reduces your limit, and how the spousal IRA lets a non-working spouse contribute.

The Roth 5-Year Rule

The two separate Roth IRA 5-year rules — one for tax-free earnings, one for penalty-free access to conversions — how each clock works, the IRS withdrawal ordering rules, and why early retirees must understand both before building a Roth conversion ladder.

Health Savings Account (HSA)

The only account with tax-free contributions, growth, and withdrawals — and why California residents face a unique state-tax wrinkle.

HSA Contribution Limits

The 2026 HSA limits ($4,400 self-only, $8,750 family, $1,000 catch-up for age 55+), how employer contributions count toward your limit, proration for mid-year enrollment, the last-month rule, and the 6% excise tax for over-contributions.

High-Deductible Health Plan (HDHP)

How HDHPs work, the 2026 IRS deductible and out-of-pocket thresholds, the permanent telehealth exception, why ACA Bronze plans now qualify as HDHPs, and the HDHP vs. PPO tradeoff for tech workers.

Health Reimbursement Arrangement (HRA)

How traditional HRAs, ICHRAs, and QSEHRAs work, which types disqualify HSA contributions, the post-deductible and limited-purpose exceptions, and how to determine if your employer's HRA is HSA-compatible.

Flexible Spending Account (FSA)

How healthcare and dependent care FSAs work, the use-it-or-lose-it rule, rollover and grace period provisions, FSA vs. HSA comparison, and California's favorable state tax treatment for FSA contributions.

FSA Contribution Limits

The 2026 healthcare FSA limit ($3,400), dependent care FSA limit ($7,500 — a major legislative increase from $5,000), the rollover cap ($680), how per-person vs. per-household limits work, and the DCFSA interaction with the dependent care tax credit.

Using Your HSA After 65

How HSA contributions stop at Medicare enrollment, the retroactive 6-month lookback trap, which Medicare premiums qualify for tax-free withdrawals (Parts B/C/D but not Medigap), the IRMAA management advantage, and the pay-now-reimburse-later strategy coming to fruition.

HSA vs. FSA: What's the Difference?

Side-by-side comparison of HSA and FSA contribution limits, rollover rules, portability, investment options, and California state tax treatment — with guidance on when each account wins and whether you can have both.

COBRA Health Insurance

How COBRA continuation coverage works, the 60-day retroactive election window, how much COBRA costs at large tech companies, COBRA vs. ACA marketplace comparison, how HSA funds can pay COBRA premiums, and California's Cal-COBRA extension.

529 Plans

How to fund education tax-free — including superfunding with RSU proceeds, the 529-to-Roth rollover, and California plan selection.

Equity Compensation

Qualified Small Business Stock (QSBS)

How Section 1202 eliminates federal capital gains tax on up to $10 million of startup gain, the five qualification requirements, why early exercise and a timely 83(b) election are essential, California's non-conformity trap, Washington's favorable treatment, and how QSBS stacking multiplies the exclusion across family members.

Stock Options & Equity Compensation

How startup stock options work — the ISO vs. NSO distinction, AMT exposure, the 83(b) election, QSBS exclusion, and the most common employee mistakes.

Employee Stock Purchase Plan (ESPP)

How ESPPs work, how gains are taxed, the difference between qualifying and disqualifying dispositions, and how plans compare at Microsoft, Apple, Nvidia, and others.

Fair Market Value (FMV) for Private Company Stock

What fair market value means for private company stock, how 409A valuations establish FMV for common shares, why FMV is always lower than the preferred valuation, and how FMV affects taxes on RSAs, ISOs, NSOs, and double-trigger RSUs.

409A Valuation

How 409A valuations work, why common stock FMV is always lower than the preferred valuation, how the IRS safe harbor protects companies and employees, and what questions to ask when reviewing a private company equity offer.

Restricted Stock Award (RSA)

How RSAs differ from stock options and RSUs, why early-stage companies use them, how vesting and taxation work, and why the 83(b) election — due within 30 days of grant — is the most important filing decision for RSA recipients.

83(b) Election

How the 83(b) election changes when you are taxed on restricted stock, why the 30-day deadline is absolute, how to file IRS Form 15620, when the election is a bad idea, and how it interacts with QSBS to potentially eliminate federal capital gains tax.

Incentive Stock Options (ISO) in Private Companies

How ISOs work at private companies — the federal tax advantage over NSOs, the $100,000 annual limit, AMT exposure at exercise, the California trap that taxes the spread as ordinary income, qualifying vs. disqualifying dispositions, and how ISOs interact with QSBS.

Early Exercise of Stock Options

How early exercise works, why it is most valuable when the spread is near zero, the tax math comparing early vs. standard exercise, AMT considerations for ISOs, how early exercise starts the QSBS clock, and the risks when the company fails or you leave early.

Non-Qualified Stock Options (NSO) in Private Companies

How NSOs work at private companies — who can receive them, how the spread is taxed as ordinary income at exercise, FICA for employees vs. self-employment tax for contractors, capital gains after exercise, QSBS interaction, and how NSOs compare to ISOs in California.

Vesting Schedule

How startup equity vesting works — the 4-year / 1-year cliff standard, monthly vs. quarterly vesting, non-standard schedules to watch for, single vs. double-trigger acceleration, milestone-based vesting, and what to verify in your grant agreement before signing.

RSU in Private Companies

How double-trigger RSUs work at private companies — why the double-trigger structure exists, how tax timing differs from public company RSUs, the 7-year expiration risk, single vs. double-trigger comparison, and what to ask before accepting an RSU grant.

Double-Trigger RSU: The Complete Guide

How double-trigger RSUs work — the two conditions required for share delivery, what qualifies as a liquidity event, the 7-year expiration deadline, tax mechanics at each trigger, what happens in an acquisition, and the full negotiation checklist before signing.

How Equity Dilution Works in Startups

How equity dilution works at private companies — the dilution formula, how ESOP pool expansions are structured pre-money, realistic dilution across seed through Series C, cap table basics, anti-dilution provisions, and why percentage always matters more than share count.

Post-Termination Exercise Period (PTEP)

How the post-termination exercise period works — why 90 days is the ISO default, how ISOs convert to NSOs after that window, the financial trap that catches departing employees, how to negotiate a longer PTEP, and what to do when you're about to leave.

Retirement Planning

FIRE — Financial Independence, Retire Early

How tech workers can reach financial independence using RSUs, mega backdoor Roth, tax strategy, and smart withdrawal planning — including Bay Area cost realities.

Lean FIRE

How tech workers can reach Lean FIRE — retiring on $30,000–$60,000 per year — using RSU proceeds, tax optimization, ACA subsidy planning, and early retirement withdrawal strategies with a 5–10 year timeline.

Fat FIRE

How senior software engineers can reach Fat FIRE — retiring on $150,000–$300,000+ per year — through RSU strategy, mega backdoor Roth, tax optimization, and smart portfolio sequencing from Bay Area and Seattle compensation.

Regular FIRE

How software engineers can reach Regular FIRE — retiring on $80,000–$120,000 per year — through RSU strategy, tax optimization, account sequencing, and deliberate relocation planning in 10–15 years.

Barista FIRE

How to escape high-intensity tech work before reaching a full FIRE number, cover expenses with part-time income, and let your portfolio compound to full financial independence — with Roth conversion strategy and healthcare planning.

Coast FIRE

How to calculate the Coast FIRE number — the portfolio size where compound growth alone reaches your retirement target — and how tech workers can then downshift to lower-stress work without touching their investments.

Geo FIRE

How software engineers use geographic arbitrage to retire years earlier by leveraging Bay Area and Seattle earnings in lower-cost countries — with international tax planning, destination comparisons, and Roth strategy.

Early Retirement for Tech Workers

How FAANG compensation, equity windfalls, and non-linear career paths create a compressed retirement timeline — and why relocating from California to Texas, Washington, or abroad can cut years off your number.

Monte Carlo Simulation

How Monte Carlo simulations model retirement probability — and why ignoring taxes, RMDs, account types, and Social Security taxation produces dangerously optimistic results.

Sequence of Return Risk

Why two retirees with identical average returns can have completely different outcomes, how non-correlated assets protect against early bear markets, and who actually needs to worry about this risk.

Social Security

How early retirement affects your Social Security benefit, when to claim (62 vs. 70), federal taxation of up to 85% of benefits, which states tax Social Security, Roth conversion strategy before benefits start, and how financial projections model the full interaction with RMDs and portfolio withdrawals.

Tax Torpedo

Why IRA withdrawals in retirement can carry effective marginal rates of 40% or higher, how the Social Security combined income formula creates a non-linear rate spike, the RMD connection for tech workers with large pre-tax balances, and the strategies — Roth conversions, QCDs, Roth withdrawals, income smoothing — for defusing the torpedo before it fires.

Medicare

How Parts A through D work, why Medicare is an individual benefit with no family plan, how IRMAA surcharges can add thousands per year based on income from two years prior, and how to choose coverage based on your health needs.

Investing

Interest Income

What investments generate interest income — savings accounts, CDs, Treasuries, TIPS, I Bonds, munis, and bond ETFs — how it is taxed as ordinary income at marginal rates, the state tax exemption on Treasuries, phantom income on TIPS and multi-year CDs, why muni interest raises MAGI, and the most common mistakes high earners make with fixed income tax location.

Dividends

How dividends are decided and paid, the four key dividend dates, qualified vs. non-qualified tax treatment (0%/15%/20% vs. ordinary income rates), foreign withholding taxes and the Foreign Tax Credit, why stock prices drop on the ex-dividend date, and how dividend income affects ACA subsidies and IRMAA in early retirement.

Direct Indexing

How direct indexing works — owning individual stocks instead of ETFs for daily loss harvesting, short vs. long-term capital losses and the IRS netting rules, accumulating and deploying loss carryforwards in early retirement, diversifying concentrated employer stock, and who benefits most from the strategy.

Bonds

Bond terminology from coupon to duration to YTM, how TIPS, I Bonds, and municipal bonds work, where to hold bonds for tax efficiency, and the eight most common mistakes tech workers make with fixed income in early retirement.

Bond Ladder

How bond ladders work, why they protect early retirement portfolios from forced stock sales in bear markets, step-by-step construction with Treasuries or TIPS, tax location rules, reinvestment discipline, and common mistakes.

Estate Planning

Trusts

How revocable living trusts avoid California probate, and how irrevocable trusts — GRATs, CRTs, ILITs, SLATs — transfer wealth and manage concentrated FAANG stock.

UTMA Accounts

How UTMA custodial accounts shift investment income to lower-tax family members, the kiddie tax rules and when they expire, how to fund UTMA accounts with appreciated RSU shares, UTMA vs. 529 plan tradeoffs, and how custodial accounts fit into a FIRE strategy for FAANG employees in California and Washington.

Special Needs Trust (SNT)

Why naming a child with a disability directly on an IRA or will is one of the costliest estate planning mistakes, how a third-party SNT preserves SSI and Medicaid eligibility, what the trust can and cannot pay for, and how SECURE Act rules affect naming an SNT as an IRA beneficiary.

HEMS

How the HEMS ascertainable standard under IRC Section 2041 prevents trust assets from being included in a beneficiary's taxable estate, what each of the four categories covers, how HEMS applies in bypass trusts and marital trusts, and why HEMS is generally not used in special needs trusts.

Private Fiduciary

What a private fiduciary does as trustee, conservator, or guardian; why family member trustees often fail in special needs trust administration; California licensing through the Professional Fiduciaries Bureau; how to find and interview a private fiduciary; and what professional administration costs.

Trustee

What a trustee actually does across investment management, distributions, and compliance; the five fiduciary duties; individual vs. corporate vs. private fiduciary trustees; how a trustee differs from an executor; and what to evaluate when choosing a successor trustee.

ABLE Account

How up to $100,000 in an ABLE account is excluded from the SSI resource limit, who qualifies under the expanded age-46 rule starting in 2026, the $20,000 annual contribution limit and ABLE to Work exception, what counts as a qualified disability expense, and how ABLE accounts and special needs trusts work together.

First-Party vs. Third-Party Special Needs Trust

How a third-party SNT (funded by parents) avoids Medicaid payback while a first-party SNT (funded with the beneficiary's own assets) requires state reimbursement at death, the common mistakes that force a first-party trust when a third-party was intended, and how the SECURE Act's inherited IRA rules apply differently to each.

Trust Protector

How a trust protector can remove and replace the trustee, amend trust terms in response to tax law changes, and modify distribution standards without court involvement — and why special needs trusts that will operate for decades benefit most from this provision.

Pooled Trust

How pooled trusts work, why they are the only first-party trust option for beneficiaries over age 65, when a pooled trust beats an individual SNT, how remainder assets are distributed at death, and how to find a qualified nonprofit pooled trust administrator by state.

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