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There are three types of account where you can hold your assets. Determining which accounts you place certain assets, based on tax-efficiency and expected return, can have a significant impact on your after-tax net returns.

Taxable accounts, such as your individual accounts and trust, are taxed at the capital gains tax rate when distributed. Deposits in this account are after-tax.

Tax-free accounts, such as a Roth IRA, grow 100% tax-free and there is no tax on distributions. However, you do pay tax on the deposit based on ordinary income.

Tax-deferred accounts are subject to ordinary income tax rates upon distribution, but there is no tax paid on the deposit, instead, it’s deferred until later.

In this video, Jason Thomas, CFP® explains how to strategically locate your assets to try to produce the highest after-tax net returns.

Important Points:

(00:12) – The difference between Asset Location vs. Asset Allocation

(00:52) – There are three different pools of money and they are all taxed differently: tax-free, taxable, and tax deferred

(01:56) – Where to place tax inefficient items and tax advantage items

(02:15) – Where to place the investments: stocks

(02:44) – Where to place the investments: bonds

(03:31) – Where to place the investments: mutual funds

(04:30) – Where to place the investments: exchange traded funds (ETF)

(06:25) – Prioritizing assets classes

(07:36) – Asset Allocation

About the Author

Financial Educator

CFP®, AIF®

Jason has been involved in the financial services industry as an advisor and financial educator for more than ten years. Prior to joining Pure Financial Advisors, Jason taught in the Financial Planning program at the...