Retirement Book Review Series 2: The OverTaxed Investor Phil DeMuth

The Alpha Tax Dog and The OverTaxed Investor by Phil DeMuth


Hold on tight cause this book about taxes is excellent! The Overtaxed Investor by Phil DeMuth has a ton of DIY tax knowledge. I’ll just give it 5/5 DIY stars now, just to warn you, because there is real value in this book.

Wait, did I just call a book on taxes excellent? Yes! And its fun to read, too.

This book is not for the beginner, however. They are advanced tax topics by and large, and Phil doesn’t go out of his way to explain the basics. But honestly, with taxes, you need to move beyond the basics rapidly to make progress. Taxes are complicated. They just are. There are, however, few greater rewards than understanding taxes. Start somewhere. Let’s dive in to this Retirement Book Review Series episode 2 with Phil DeMuth and his Tax Alpha Dog: The OverTaxed Investor.

Retirement Book Review Series: Volume 1 Larry Swedroe Your Complete Guide to a Successful & Secure Retirement 


Review of The Overtaxed Investor

Phil starts out right away talking about the Alpha tax dog. Alpha, as in, excess returns.

As an investment guy, Phil states that you don’t get alpha by picking better funds; you get alpha by focusing on tax-efficient low-cost funds. That’s right: you can’t control returns, but you can control the amount you pay in fees and taxes. This is solid information and a great starting place. Most folks have figured out that low cost indexing is the way to go. Tax-efficiency, on the other hand—that is asset location and more—well, we still have a ways to go with that issue.


Section on Statutory Tax Shelters

I give Phil some credit for trying to simplify tax shelters. He comments that oil and gas exploration can bring big tax breaks, given that income is active (not passive), and there are exemptions, deductions, depletions allowances, and exemption from AMT. Hard to pass up except for “the field is famous for scams and dubious opportunities… they are such terrible investments that they can only be sold to doctors.” Spot on Phil!

He is more supportive of MLPs than I would have figured, but usually just for old folks in their brokerage accounts. Take advantage of the tax savings then pass the low basis to your heirs for the step up upon death.

Next, I like that he calls the control people feel with real estate rather than paper assets “a mirage.” I agree with this: “If real estate investing were a vastly superior proposition to stock market investing, or vice versa, everyone would have figured this out a long time ago.” Further, he makes the point that with syndicates, the only sponsors who need your money are those with bad deals. People with good deals have no problems finding money…

In summary, Phil is pretty negative on real estate and tax shelters in general. One could say that he in an investment guy, or, on this issue, a smart guy.


Other Great Tips for the Alpha Tax Dog

Some custodial account have tax-efficient selections for cost basis reporting. Beyond using specific share identification, there are options like best tax, tax lot optimizer, or tax sensitive that sell short term losses first, then long term-losses, then long-term gains. Genius.

As to the importance of not dying with loss assets: “When you are on your death bead, your first call should be to your advisor, with instructions to sell every position registering a tax loss.” He says leave your gains for step up in basis and never gift or die with losses. Perhaps it is back in vogue to have the elder spouse hold all the low-basis assets so they get a step up in basis upon his or her death for the younger spouse? I’m going to cogitate on that one more for an upcoming blog.

Another variation on that theme: Donate highly apricated shares to your parents before they die so you can get the step up in basis when they die. “Shazam—captial gains be gone!” Love it Phil… Also a great section on using family loans and the yearly exclusion amount to forgive them for your children.

But you know me. I’m mostly a glass half empty kind of guy… there must be some issues with the book???


OverTaxed Investor Glosses Over Some Issues

The section on asset location is particularly disappointing. After all, this is a book about tax alpha!

Its also pretty clear he doesn’t understand insurance products very well. After all, he admits he is an investment guy. One glaring mistake is talking about how you “can” annuitize an immediate annuity. Well, Phil, by definition an immediate annuity has to start paying out within 13 months… so there is no “can” about it. It is common for investment guys to miss the subtleties of annuities; after all, it is common for annuity salesmen to miss them too! 

Finally, perhaps he is too fond of tax loss harvesting. There is alpha there, granted, but it is a difference in timing rather than anything more significant than that. 

I have very little negative to say about this book. As far as finance books go, this is top dog.


Best Tips from “The Boneyard”

At the end of each chapter, The Overtaxed Investor has tips, called “The Boneyard.” Let’s look at some of the best quotes from the Boneyard and the book:

-We pay a small fortune in taxes, and yet we are not getting much help. We are in this all alone.

-The tax alpha dog focuses on reducing his tax bill over his lifetime, not just this year.

-If you want tax planning advice, you had better be a business client of the tax CPA firm. Otherwise, you are on your own.

-Table 5.3 “Riding the Brackets” should be made public and updated every year. These are the key thresholds to stay under. Brilliant compilation of data.

-“Postpone Marriage until shortly before death.”


Phil on Retirement

Phil agrees that deaccumulation, admittedly, is much more difficult than his specialty which is accumulation.

While playing down the usefulness of the safe withdrawal rate, he next goes on to say that common wisdom for the withdrawal order from retirement accounts is wrong. Common wisdom–brokerage then tax-deferred then tax-free–is not tax efficient if you don’t utilize the lower brackets.  He blames academics and institutions for failing to provide better data for folks on this very issue.

I love the next part, where he has several pages regarding what it takes to make a tax-efficient de-accumulation plan for Roth conversions. “What is simple about that?” Phil, I agree. It takes several pages of spreadsheets to figure this out, and, he and I agree, there really is no good way to do this on-line for the DIY investor. Yet.


Best Line from The Overtaxed Investor

Henceforth, what is the purpose of your life? Tax bracket management.

-Phil DeMouth


overtaxed investor review

If she can’t find me… she can’t break up with me. -George Castanza


Summary: The Overtaxed Investor Review

This is a good book book. Phil focuses on those who can save the most with tax planning: the wealthy. Yes, he also talks about the 10/12% tax bracket, but as part of filling those brackets efficiently during the Tax Planning Window.

In Summary: Most Americans worry about things that they can’t control like investment returns. Instead, focus on what you can control — like how much taxes you pay on your investments. And how much your financial advisor costs you over time.

Phil, where have you been all my life?? Next book of his I want to read:  Yes, You Can Time the Market! (check it out, he actually wrote a book with that title!).


  • DIY 5/5 Stars
  • Wealthy 5/5 Stars
  • Actionable 3/5 Stars
  • Overall 5/5 Stars




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