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Asset Location for Stocks in a Brokerage Account Versus IRA Depends on Time Horizon
Michael Kitces in Nerd's Eye View Apr. 22, 2015
"[W]hile the traditional 'rule of thumb' for asset location is that tax-inefficient bonds go into an IRA, while equities eligible for preferential tax rates go into a brokerage account, the reality is that for investors with long time horizons the optimal solution may be the opposite. Once stock dividends and portfolio turnover are considered, the ongoing 'tax drag' of the portfolio can be so damaging to long-term returns that placing equities into an IRA may be more efficient, even though they are ultimately taxed at higher rates! ... [In] the end, good asset location decisions depend not only on returns and tax efficiency, but an investor's time horizon as well!"
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