Confused about where to hold your investments for maximum tax efficiency? Look no further! Here I outline investments best suited for non-retirement (taxable) accounts, helping you keep more of your hard-earned money.
The key: minimize taxes on income (dividends etc.) and capital gains. By strategically placing certain investments in tax-advantaged accounts like IRAs, you can significantly reduce your tax burden.
Here’s what to avoid in your taxable account:
Taxable Bonds and Bond Funds: Opt for municipal bonds instead, which offer tax-exempt interest in most cases.
Multi-asset Funds: These often distribute taxable dividends and capital gains, making them less tax-friendly.
Actively Managed Equity Funds: High turnover can generate short-term capital gains taxed at higher rates. Consider passively managed index funds.
High-Dividend-Paying Stocks and Funds: While enticing, dividends are taxed as ordinary income.
REITs and REIT Funds: These distribute taxable income, making them better suited for tax-sheltered accounts.
Commodities Futures Funds: Highly volatile and often taxed as ordinary income, increasing tax complexity.
Convertibles and Funds Owning Them: Can convert to taxable stock, triggering capital gains.
Alternative Funds: Complex structures and potential for ordinary income taxation make them less tax-efficient.
Remember, this is just a starting point. Your individual circumstances and goals might neet to modify the above.
By following these tips, you can make smarter investment choices and keep more of your hard-earned cash!
Bonus Tip: Explore tax-advantaged accounts like IRAs and 401(k)s to maximize your tax savings! |