You can spend 30 years choosing investments carefully and barely question which account holds them.
That oversight can leave you paying taxes each year on income you could potentially shelter, while using retirement-account space for investments that already receive favorable tax treatment.
Consider taxable bonds in a brokerage account and a low-turnover stock index fund in a traditional IRA.
The bond interest generally creates taxable income each year, even when you reinvest it. With the stock fund, unrealized appreciation generally isn’t taxed until you sell, and long-term gains may qualify for lower rates. Dividends can still create an annual tax bill.
Both investments may belong in your portfolio. But their different tax treatment gives you a reason to examine where you hold them.
That decision is called asset location.
Holding taxable income investments inside a traditional IRA can defer the annual tax bill. Holding tax-efficient stock investments in a brokerage account can preserve the benefits they already have there.
You may be able to improve tax efficiency while keeping the same overall investment mix.
There’s an important distinction, though: a traditional IRA defers taxes. It doesn’t eliminate them. Taxable withdrawals generally count as ordinary income.
A Roth works differently. Qualified withdrawals are tax-free, which can make it valuable for long-term growth assets as well as income investments. “Put all your income in retirement accounts and all your growth outside them” is too simple to be a universal rule.
Your tax brackets, withdrawal needs and available account space all matter. Selling existing holdings to rearrange things may itself trigger taxes.
The useful question for your CPA and adviser is:
“Looking across all my accounts, are we sheltering the investments that benefit most, after accounting for how and when I’ll withdraw the money?”
That is a more productive conversation than evaluating each account in isolation.
On September 17, I’m hosting an educational webinar for accredited investors about how to think more deliberately about retirement assets, including the role of account structure and the questions to ask before considering private investments.
We’ll discuss the opportunities and the limitations, so you can bring better questions to your own advisers.
Thursday, September 17
1 PM Mountain / 3 PM Eastern
No cost. Live Q&A. Replay included.
Commeht “WEBINAR” and I will DM you a link to the registration page where you can learn more.
