Remember you should always consult with your own well regarded and recognized tax advisor so you can get informed advice based on your individual situation. Most tax-advantaged accounts are subject to maximum contribution rules each year so you are often forced to decide which assets to hold where. A few general rules are:
- Tax-efficient investments such as index-based mutual funds should be held directly with the fund company or through a brokerage account. Since they are not likely to buy and sell investments often, gains can build up in the form of underlying appreciation. More on that later.
- Cash generating assets such as REITs, dividend-rich stocks, and corporate bonds should be held in tax-advantaged accounts. Shares of companies that retain all of their profits and you plan on holding for long periods of time might be best held in brokerage accounts. A business such as Berkshire Hathaway, which has not paid a dividend since the mid-1960’s, is a good candidate because as long as you bought your shares and are still holding them, you haven’t paid a dime in taxes. Instead, your money has been compounding just as if it were in a Traditional IRA with a tax due only upon sale.
