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Portfolios 205: The Best Investments for Tax-Deferred Accounts

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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.
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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.
Holding your stocks in a Roth IRA can provide you with tax-free withdrawals.
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True. The key word here is 'can.' As long as you meet the requirements, you can take your withdrawals tax-free.
3.
Which factor determines whether you should hold stocks or bonds in your tax-deferred accounts?
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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.
4.
Mike only owns stocks and stock funds--no bonds. Taxwise, what should he do?
Choose wisely. There is only one correct answer.
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.
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?
Choose wisely. There is only one correct answer.
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.