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Portfolios 205: The Best Investments for Tax-Deferred Accounts

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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?
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.
2.
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?
Choose wisely. There is only one correct answer.
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.
3.
Stock funds with very lower turnover ratios would do best in _______.
Choose wisely. There is only one correct answer.
A taxable account. The low turnover rate would make them fairly tax friendly to a taxable account.
4.
Which factor determines whether you should hold stocks or bonds in your tax-deferred accounts?
Choose wisely. There is only one correct answer.
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.
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.