The Importance of Asset Location
Asset location is a term used to describe how investments are distributed across various saving vehicles. For example, you may have an IRA, a Roth IRA, a Trust or Joint investment account, a 401(k), etc. But do you pay attention to what investments should be held in each of those accounts? You should!
There are several questions to ask when allocating investments to various accounts, such as –
- When will you need the money?
- When can you access the account without penalties?
And a 3rd question that that may need to reevaluated after the recent tax law changes –
- What investments are best for my 401(k)/IRA vs. taxable accounts?
To answer, consider the difference between –
Taxable accounts - Current long-term capital gains rates (likely 15-20%)
Tax-deferred accounts - New 2018 marginal tax-rates and possible future tax rates in retirement
Today is not the day for specifics, but I encourage you to ask questions like –
- What percentage of stock should be in my 401(k) vs. my investment account?
- Should I allocate more bonds to my IRAs or my investment account?
- Should I sell an appreciated stock in my IRA and buy it back in my investment account?
- How does making these changes compare vs. the benefit of compounded tax-deferred growth?
- How should my future tax rates in retirement be considered?
Disclaimer: Alex Voorhees and Reston Wealth Management do not provide legal, accounting or tax advice. This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor. The opinions voiced in this article are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. No strategy assures success or protects against loss.