Where you hold your investments (tax-deferred or taxable accounts) can make a difference. For example, stocks and stock funds held in a tax-deferred retirement account (i.e. 401k or Traditional IRA, etc.) turn a capital gain into ordinary income.
If you are in the 15% tax bracket, the current capital gains tax rate is zero. Putting money into a Traditional IR or 401k will save on taxes right away but it is only a deferral until some later date.
Another possible challenge in retirement is that required minimum distributions will push you into a higher tax bracket when this could be managed by possibly using ROTH IRA's if you qualify or a taxable account.
Another disadvantage is that those tax-deferred retirement accounts do not get a step-up in basis at death but rather are passed on to beneficiaries who then will be taxed on withdrawals in their regular income tax bracket.
Bonds and bond funds held in non-taxable accounts will not grow as fast but interest income is taxed at the same rates as ordinary income.
Tax location diversification makes sense.
An Introduction
Hi. Welcome to BourGroup and my blog. Phil
Phil Bour is a CERTIFIED FINANCIAL PLANNER(tm) professional since 2004, a Magna Cum Laude college graduate and an accounting professional for over 35+ years. I love numbers, statistics and economic history.
I am also an Enrolled Agent (EA) to represent taxpayers before the Internal Revenue Service and to prepare tax returns.
"Phil"osophy: I believe that you can manage your money on your own (not necessarily through individual stock selection but through mutual funds, ETF's and other solutions) once you receive some one-time, professional guidance. Why pay annual fees when there may be little added value? For additional information, first read the "An Introduction" label at the left. Then move on to others.
Phil Bour is a CERTIFIED FINANCIAL PLANNER(tm) professional since 2004, a Magna Cum Laude college graduate and an accounting professional for over 35+ years. I love numbers, statistics and economic history.
I am also an Enrolled Agent (EA) to represent taxpayers before the Internal Revenue Service and to prepare tax returns.
"Phil"osophy: I believe that you can manage your money on your own (not necessarily through individual stock selection but through mutual funds, ETF's and other solutions) once you receive some one-time, professional guidance. Why pay annual fees when there may be little added value? For additional information, first read the "An Introduction" label at the left. Then move on to others.