Investment returns are usually discussed on a pre-tax basis. What an investor can actually spend, however, is the after-tax amount. Small improvements in tax efficiency can compound meaningfully over time.
Key Concepts
- Asset location — Holding tax-inefficient assets (such as certain bonds or REITs) inside tax-advantaged accounts when possible, and more tax-efficient equity holdings in taxable accounts.
- Tax-loss harvesting — Realizing losses in taxable accounts to offset gains, while maintaining similar market exposure.
- Distribution planning — Sequencing withdrawals from different account types (taxable, traditional, Roth) in a way that manages the tax bill over time.
- Coordination with a CPA — Ensuring investment decisions and tax filing strategies work together rather than at cross-purposes.
Tax-aware investing is not about avoiding taxes at all costs. It is about making deliberate choices so that more of the portfolio’s growth remains available for the investor’s goals.
This is general education only. Tax rules are complex and change. Consult your tax professional for advice specific to your situation. We coordinate with clients’ CPAs but do not provide tax or legal advice.