Tax-Efficient Investing
The same holding produces different after-tax outcomes depending on the account it sits in. The difference compounds, which is why it grows with the holding period rather than staying fixed.
Every investment account falls into one of three, separated by when tax is paid:
- Pre-tax
- 401(k), traditional IRA, 403(b). Deducted now, taxed as ordinary income on withdrawal. The comparison that decides it is your rate now against your rate then.
- Post-tax (Roth)
- Roth 401(k), Roth IRA. Taxed now, untaxed on qualified withdrawal under current law. The same comparison, reversed.
- Taxable
- Brokerage accounts. Dividends and realised gains taxed as they occur, with no contribution limit, no withdrawal restriction and no required distributions.
Holding all three creates choice in retirement. Because each is taxed differently on withdrawal, the mix determines how much control there is over taxable income in any given year.
This content is educational and informational only. It is not financial, investment, or tax advice. Consult a qualified professional before making financial decisions.