Asset location refers to your investment assets and the accounts they belong to. We use asset location to minimize your tax bill and increase your after-tax returns.


Investment assets are taxed differently based on two things. First, the type of the investment and second, the type of account. For example, dividends on stocks or mutual funds are taxed at your ordinary income tax rate. Capital gains are taxed at a different rate. Depending on your marginal tax rate, your capital gains tax rate may be 0%, 15% or 20%.


The type of account your investment is in also determines the tax impact. There are three primary types of accounts: ordinary or taxable accounts; tax deferred accounts; and tax exempt accounts. In the US, the traditional IRA is an example of a tax deferred account. Taxes on earnings in the account are ‘deferred’ until the money is taken out. The tax rate on the withdrawals will be your ordinary tax rate. For Roth accounts, the money is taxed before it goes in, but from that point on all withdrawals are tax exempt. 401K plans can either be tax deferred or tax exempt in the case of a 401K roth.


Okay, you have demonstrated the tax code is confusing, but what about asset location?


When it comes to investing, we care about after-tax return. That’s where asset location comes in. Given the clients tax situation and their account types, we place the right assets in the right place to minimize taxes and increase after-tax returns. The determination of where to best place assets needs to consider your current and future tax situation, including your income and expenses over time.

Want to learn how we can help you minimize your taxes and increase your returns?
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