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While-You-Wait Investing: Tax Location

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.

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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.

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