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Most investors focus on what they invest in. Stocks, bonds, cash, and other assets tend to get most of the attention.

But an equally important decision is often overlooked:
​which accounts you choose to hold those investments in.

This is called asset location, and it can have a meaningful impact on how much of your return you keep after taxes.

Asset Location vs. Asset Allocation

These terms sound similar, but they play different roles.

Asset allocation is the mix of investments you own, such as stocks, bonds, or cash.
​Asset location is where you place those investments, such as a:

• Taxable brokerage account
• Tax-deferred account (401(k), traditional IRA)
• Tax-free account (Roth IRA)

The goal is simple. You want to place investments in the accounts that may help reduce tax drag and support long-term planning.

Why Asset Location Matters

Different investments create different types of income. Some create taxable income each year. Others may grow tax-deferred or tax-free depending on where they are held.

For example, a bond fund generates interest income. If you hold it in a taxable brokerage account, you may pay taxes on that income every year. That reduces the after-tax return.

But if you hold that same bond fund in a tax-deferred account, those annual taxes are deferred, giving the investment more room to compound. Withdrawals in retirement may also be taxed at a lower rate.

The investment is the same.

The return is the same.
​The location is what makes the difference.

How Asset Location Can Improve Outcomes

Research has shown that thoughtful asset location may support more efficient long-term outcomes, especially for retirees drawing from multiple types of accounts.

It does not require more risk, more saving, or spending less.

It simply uses the tax rules already in place to help keep more of what you earn.

How to Implement an Asset Location Strategy

Most investors use three types of accounts:

1. Tax-deferred accounts

Traditional 401(k)s and IRAs

• Contributions are pretax
• Investments grow tax-deferred
• Withdrawals in retirement are taxed as ordinary income

2. Tax-exempt accounts

Roth IRAs and Roth 401(k)s

• Contributions are after tax
• Growth and withdrawals are tax-free if rules are met​

3. Taxable accounts

Brokerage accounts

• Funded with after tax dollars
• Dividends and capital gains are taxable in the year they occur

General Guidelines for Asset Location

Every situation is different, but many investors follow these common principles:

Place higher-growth assets in tax-free accounts

Roth accounts are powerful because they allow decades of growth that can be withdrawn tax-free.

Investments such as stocks, stock funds, and equity ETFs are often well suited for Roth accounts due to their higher long-term growth potential.

Place income-generating or lower-growth investments in tax-deferred accounts

Bond funds, REITs, and other income-focused investments can create regular taxable income.

Placing them in a traditional 401(k) or IRA can reduce annual tax drag and allow those assets to grow without yearly taxation.

Use taxable accounts strategically

Taxable accounts can still be very efficient when holding investments with lower turnover or tax-friendly characteristics.

They also offer flexibility for withdrawals, charitable giving, and managing capital gains.

Asset Location in Practice

A Strategy That Doesn’t Require Constant Monitoring

Asset location is not a high-maintenance strategy.

A yearly review is often enough to make sure your accounts remain aligned with your goals and your overall asset allocation.

Your tax situation, income level, and retirement goals may shift over time, so it makes sense to revisit your approach periodically.

The Bottom Line

Planning for retirement is not just about choosing investments. It is also about choosing the right accounts to hold them in.

By being thoughtful about where each investment lives, you may improve tax efficiency and support long-term planning, without needing to change the underlying investments themselves.

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​Keeping wealth in focus,

The MY Wealth Management Team