Choosing Investment Accounts with Taxes in Mind


How you divide your money between taxable and tax-exempt (or tax-deferred) accounts can affect investment returns. A 2010 Morningstar study found investors who did not consider tax implications in their investment choices lost 1 to 2 percent of annual returns to the U.S. Internal Revenue Service. In the course of saving for retirement, this can really add up. So which investment vehicles should you place into taxable and tax-exempt accounts?

Dividend-paying stocks, exchange-traded notes, low-turnover stock holdings, and master limited partnerships should be held in taxable accounts, such as one you might have with a brokerage firm or a Roth IRA.

Real estate investment trusts (REITs), bonds, high turnover investments, hedge fund holdings, commodities, options, and futures work to an investor’s benefit in tax-exempt or tax-deferred accounts, such as a traditional IRA.

Disclaimer: The views expressed in this article are the opinions of the author and should not be interpreted as individualized investment advice. Investment objectives, risk tolerances and the financial situation of individual investors may vary. Please consult your financial and tax advisors before investing.

Susan Carr-Templeton

About Susan Carr-Templeton

Susan Templeton is the founder of Stafford Wells Advisors, a wealth management firm serving individuals, families and businesses and advising workplace retirement plans. Stafford Wells was founded in 2008 with the mission of delivering independent, complete, unbiased investment and planning advice, free of any conflicts of interest. Susan Templeton has more than 20 years experience in investment management. She received her B.S.B.A. degree in marketing from the University of Denver and her M.B.A. from the University of Chicago. Susan is a trustee for the Advocate Foundation where she chair’s the Planned Giving Committee and is a member of the Investment Committee. Susan serves on the investment committee for the Visiting Nurse Association (Chicago) and is a former trustee of the Village of Oak Brook Police Pension Plan.