Strategy Intermediate: 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?
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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.
Mike only owns stocks and stock funds--no bonds. Taxwise, what should he do?
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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.
3.
Where would be a wise place to put large-company index funds?
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A taxable account. Large-company index funds tend to be pretty tax-efficient anyway.
4.
Stock funds with very lower turnover ratios would do best in _______.
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A taxable account. The low turnover rate would make them fairly tax friendly to a taxable account.
5.
It's always best to put your stocks in a tax-deferred account and your bonds in a taxable account.
Choose wisely. There is only one correct answer.
False. Although this rule may hold for certain long-term investors, there are too many exceptions to make it a hard-and-fast rule.