Choose wisely. There is only one correct answer to each question.
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1.
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.
2.
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.
3.
Holding your stocks in a Roth IRA can provide you with tax-free withdrawals.
True. The key word here is 'can.' As long as you meet the requirements, you can take your withdrawals tax-free.
4.
Mike only owns stocks and stock funds--no bonds. Taxwise, what should he do?
Place individual stock holdings that he plans to hold for a long time in his taxable account; place shorter-term stock investments and stock mutual funds in his tax-deferred account. He should also place stock funds with very lower turnover ratios in his taxable account and those with higher turnover ratios in his tax-deferred account. Large-company index funds can go into his taxable account, because they tend to be tax-friendly.
5.
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.
