Reduce taxes by choosing the right account for each investment. Here’s a realistic example showing how asset location works in the real world. Check Below and Grow your Money Safe 👇
What Is Asset Location?
Asset location is about placing different assets in the right account types to reduce taxes and increase your after-tax returns — without changing what you invest in.
Meet David: A Real-World Investor
Profile:
- Age: 38
- Profession: IT Manager
- Annual Income: $110,000
- Retirement goal: Age 60
Investment Accounts:
- 401(k): $220,000
- Roth IRA: $50,000
- Taxable Brokerage: $150,000
Target Portfolio: 60% Stocks, 30% Bonds, 10% REITs
Step 1: Tax Efficiency of Assets
| Asset | Tax Efficiency | Tax Treatment |
|---|---|---|
| US Stocks | High | Capital gains, qualified dividends |
| Bonds | Low | Ordinary income tax |
| REITs | Very Low | Ordinary income (often high) |
| International Stocks | Medium | May receive foreign tax credit |
Step 2: Optimal Asset Placement
Here’s how David should allocate:
- 401(k): $126k Bonds + $44k REITs + $50k International Stocks
- Roth IRA: $6k REITs + $44k International Stocks
- Taxable Brokerage: $106k US Stocks + $44k International Stocks
Step 3: Why This Works
This strategy shields high-tax income (bonds/REITs) from taxation. Stocks stay in taxable accounts where tax rates are lower and loss harvesting is possible. Roth IRA holds long-term growth assets tax-free.
Result After 20 Years
Same portfolio – different outcomes:
- Without asset location: ~$85,000 lost to tax drag
- With asset location: ~$65,000 in taxes saved
Summary Table: Best Asset Placement
| Asset Type | Best Account Type |
|---|---|
| REITs | Roth IRA > 401(k) |
| Bonds | 401(k) |
| US Stocks | Taxable Account |
| International Stocks | Roth IRA or Taxable |
Final Thoughts
David didn’t invest differently — he just placed assets more wisely.
Use asset location to:
- ✔️ Reduce tax drag
- ✔️ Maximize after-tax wealth
- ✔️ Align tax characteristics of each asset with the right account
