Most people today have multiple investment accounts to manage as they work toward retirement. In addition to savings and brokerage accounts, it’s common to have a 401k plan, a Roth IRA, and a rollover IRA from a previous job. Each of these accounts has unique tax characteristics, and not all accounts are suitable for every investment. Placing your carefully chosen assets in an inefficient account can take a big chunk out of your expected returns.
The practice of strategically placing investments in different types of accounts to maximize your after-tax returns is called tax location, and it’s a powerful technique. The benefits of tax location have been well-cataloged, with studies pointing to a boost in returns of 20-plus basis points per year on average1. This extra return doesn’t require any change in your mix of assets, just some attention as to where you put them.
Watch our video to learn how tax location strategies work.
To learn more about tax location and develop your optimal tax strategy, download Personal Capital’s Tax Guide.
This blog is for informational purposes only and is intended to offer guidance; not specific legal or tax advice. Clients are advised to consult their CPA before taking action based on this advice.
1. “Asset Location: A Generic Framework for Maximizing After-Tax Wealth,” Gobind Daryanani and Chris Cordaro.
The content contained in this blog post is intended for general informational purposes only and is not meant to constitute legal, tax, accounting or investment advice. You should consult a qualified legal or tax professional regarding your specific situation. Keep in mind that investing involves risk. The value of your investment will fluctuate over time and you may gain or lose money.
Any reference to the advisory services refers to Personal Capital Advisors Corporation, a subsidiary of Personal Capital. Personal Capital Advisors Corporation is an investment adviser registered with the Securities and Exchange Commission (SEC). Registration does not imply a certain level of skill or training nor does it imply endorsement by the SEC.