Billion-Dollar Loophole

Why tax planning is always a moving target

In 2010, when New York Yankees owner George Steinbrenner died, a curious thing happened. His estate, valued at more than $1 billion, paid no estate tax.

That was because of a quirk in the tax code that resulted in a one-year reprieve for those who happened to die in 2010. If Steinbrenner had instead died a year earlier or a year later, or in practically any other year, his estate would have owed hundreds of millions in taxes.

The lesson? This is an extreme case, but it illustrates a reality about financial planning, and about tax planning in particular: You can never know with certainty what tax rules will be in effect in the future.

So wherever possible, I recommend trying to hedge your bets. For example, if you have the opportunity to contribute to a Roth 401(k), it might be worth giving up the tax benefit in order to accumulate some tax-free funds.