Choose wisely. There is only one correct answer to each question.
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1.
It's always best to put your stocks in a tax-deferred account and your bonds in a taxable account.
False. Although this rule may hold for certain long-term investors, there are too many exceptions to make it a hard-and-fast rule.
2.
Susan has 25 years until retirement. She's in the 31% tax bracket and expects to be in the 28% bracket once she retires. What should she do?
Place stocks in her tax-deferred accounts and bonds in her taxable account. Susan is at least 15 years away from retiring and she expects to be in a lower tax bracket upon retirement. As such, she should hold stocks in her tax-deferred accounts and bonds in her taxable account.
3.
David has 10 years until retirement. He's in the 28% tax bracket now and expects to be in the 31% tax bracket once he retires. What should he do?
Place bonds in his tax-deferred accounts and stocks in his taxable account. Because David is less than 15 years away from retiring and he expects to be in a higher tax bracket upon retirement, he should hold stocks in his taxable account and bonds in his tax-deferred accounts.
4.
Which factor determines whether you should hold stocks or bonds in your tax-deferred accounts?
Both time horizon and current and expected tax brackets play a part. The higher your tax bracket in retirement and the shorter your time horizon until retirement, the more you are likely to benefit from holding stocks in taxable accounts and bonds in tax-deferred accounts.
5.
Where would be a wise place to put large-company index funds?
A taxable account. Large-company index funds tend to be pretty tax-efficient anyway.
