Course 505: What Goes Where? The Art of Asset Location
Taxable Accounts = Higher Returners With Low Tax Costs
In this course
1 Introduction
2 Why is asset location such a sticky wicket?
3 Tax-Sheltered Accounts = High Returners With High Tax Costs
4 Taxable Accounts = Higher Returners With Low Tax Costs
5 Either Account = Lower Returners With High Tax Costs

The above exceptions notwithstanding, there are compelling reasons to hold stocks in your taxable rather than tax-sheltered accounts.

As noted earlier, long-term capital gains, which is what you have when you sell a stock that you've held for at least a year, are taxed at a much lower rate than is bond income—consult the IRS’ web site for current long-term capital gains tax rates by income-tax bracket.

Another key reason to hold stock in your taxable accounts is that stock investors can also exert a higher level of control over the receipt of capital gains than bond investors--for example, by buying and holding individual stocks or by investing in exchange-traded funds, which have a built-in mechanism for limiting taxable capital gains payouts. Tax-managed funds and traditional broad-market stock-index funds also tend to do a good job of keeping the lid on distributing capital gains

Next: Either Account = Lower Returners With High Tax Costs >>


Search
Print Lesson |Feedback
Del.icio.us Del.icio.us | Digg! digg it
Learn how to invest like a pro with Morningstar’s Investment Workbooks (John Wiley & Sons, 2004, 2005), available at online bookstores.
Copyright 2015 Morningstar, Inc. All rights reserved. Please read our Privacy Policy.
If you have questions or comments please contact Morningstar.