Asset Location
Which kind of account holds which investment, arranged by how each one is taxed.
Asset allocation decides what a portfolio holds. Asset location decides where: the same fund can sit in a taxable brokerage account, a traditional 401(k) or a Roth IRA, and each treats its income differently.
The theory pairs the two by tax treatment. In its model, holdings whose income is taxed as ordinary income, such as bond interest and most REIT distributions, sit where tax is deferred or absent, while broad index funds that pay qualified dividends and trade rarely sit in taxable accounts, where they generate little tax to begin with.
It only applies where a household has more than one kind of account, and its value depends on the gap between the tax rates involved and on how much room each account has, so the benefit differs a great deal from one household to the next.
Worked through
Taxed as ordinary income
- Bond interest
- Most REIT distributions
- Short-term gains
The theory places these where tax is deferred or absent
Taxed lightly, later or not at all
- Qualified dividends
- Long-term gains
- Municipal bond interest
The theory places these in taxable accounts
Where this lives in Promi
Investing page, Retirement Planning tab. The Tax Buckets view shows balances by how each account is taxed.
See your own asset location
Promi computes this from your linked accounts, with the definition one click from the number.
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