Asset Location: The Tax Strategy Most Investors Miss
You’ve heard of asset allocation – the mix of stocks, bonds, and other investments in your portfolio.
But have you heard of asset location?
If not, you’re not alone. Most investors haven’t. Yet this simple strategy can save you thousands – even tens of thousands –of dollars in taxes over your retirement years.
Here’s the basic idea: Where you hold your investments matters just as much as what you invest in.
Here’s a quick explanation.
What is asset location?
Asset location is the practice of strategically placing different types of investments in different types of accounts to minimize your tax obligations.
Think about it this way: You probably have several different “buckets” where you keep your money:
- Taxable accounts (like brokerage accounts) – You pay taxes on dividends, interest, and capital gains annually.
- Tax-deferred accounts (like traditional IRAs and 401(k)s) – You pay taxes when you withdraw money from these accounts.
- Tax-free accounts (like Roth IRAs) – You’ve already paid taxes, so withdrawals are tax-free.
As you can see, different investments have different tax implications. Some generate more taxable income. Others generate less. Asset location is about matching the right investments to the right accounts.
Why does asset location matter?
Let’s say you have $500,000 invested. If you’ve placed your investments randomly across your different accounts without thinking about taxes, you might be paying thousands more in taxes than necessary each year.
Over 20 or 30 years of retirement, that adds up to a significant amount of wealth lost to unnecessary taxes. Imagine if that wealth had been growing and compounding for you and your family instead.
Asset location matters because it helps you keep more of what you earn.
The bottom line
Most investors spend enormous time and energy trying to pick the best investments and find the highest returns.
But they ignore asset location. This often-overlooked strategy can add significant value without requiring you to take on additional investment risk or find some “secret” investment.
It’s simply about being smart with taxes. It’s about placing the right investments in the right accounts.
At Meriwether, we help clients implement asset location strategies tailored to their specific situation. We look at all your accounts together – your taxable accounts, your IRAs, 401(k)s, and Roth accounts – and we coordinate them to minimize your tax burden.
We believe smart investing involves more than earning good returns. It’s also about keeping as much of those returns as possible.
If you’re new to the idea of asset location and not sure your investments are in the right accounts, let’s have a conversation.
This content is for educational purposes only and should not be considered personalized financial advice. Please consult with a qualified financial professional to discuss your specific situation and needs.