Many investors may be familiar with the concept of asset allocation: how your portfolio may be divided among stocks, bonds, exchange traded funds, mutual funds, CDs, cash, and real estate. But there’s another concept that may get overlooked and could potentially make a big difference in retirement: asset location.

While the two terms sound similar, they have the capacity to play very different roles in your financial plan.

One determines how your money is invested. The other determines where it lives, and how much of it you may ultimately keep.

Let’s break it down.

What Is Asset Allocation?

Asset allocation is the mix of investments in your portfolio. It may be your strategy for balancing risk and return based on your goals, age, time horizon, and comfort with market fluctuations.

A typical investment portfolio might include:

• Stocks (for growth)
• Bonds (for stability and income)
• Cash (for liquidity and emergencies)

Over time and as you near retirement, your allocation may shift. You may want to protect more of what you’ve built by reviewing and possibly updating your asset classes according to your financial plan to help you achieve your goals.

Allocation is a fundamental principle. But it’s only part of the story.

What Is Asset Location?

Asset location is about where you hold your investments.

Think of your portfolio not only in terms of what you own, but which type of account holds each asset:

• Tax-deferred accounts (like IRAs and 401(k)s)
• Taxable accounts (brokerage and individual accounts)
• Tax-free accounts (like Roth IRAs)

Each of these account types is taxed differently. The “location” of your assets, especially as you begin drawing income in retirement, may significantly affect your tax bill. You may want to consider a financial plan that maximizes after-tax returns by strategically pairing your investments with account types.

The Right Asset in the Right Place

The goal of asset location has the potential to be simple: put the most tax-efficient assets in the least tax-efficient accounts…and vice versa.

Here’s a general framework:

• Tax-deferred accounts (IRAs, 401(k)s) may be best for investments that generate ordinary income. These accounts defer taxes until withdrawal, when that income would be taxed anyway.
• Taxable accounts may be ideal for long-term holdings that qualify for capital gains treatment, which is typically taxed at a lower rate than ordinary income.
• Roth accounts may be great for investments with high growth potential, such as aggressive stock funds. Since withdrawals are tax-free, you won’t owe taxes on the gains.

In short: placing assets with purpose has the capacity to help reduce the tax drag on your portfolio.

Why It May Matter More in Retirement

When you retire, your investments may often become your paycheck. And once you start withdrawing income, taxes may come into sharper focus.

Poor asset location may impact:

Coordinating how and where you withdraw income may help minimize surprises and extend the life of your portfolio.

A Common Oversight with Real Impact

Let’s hypothetically say two retirees have identical portfolios and the same withdrawal needs. One uses strategic asset location, and the other doesn’t.

Over time, the difference in tax liability could be tens or even hundreds of thousands of dollars.

And yet, many retirement plans only focus on allocation, not location.

This is where coordinated planning may come in.

Benefits of Strategic Asset Location

When done right, aligning your investments with the right accounts may:

1. Improve your after-tax returns
2. Create more flexibility in retirement income planning
3. Allow for more efficient Roth conversions
4. Reduce the likelihood of spiking into higher tax brackets in future years

And more importantly, we believe it gives you the potential for more control over how and when your money is taxed.

Take a Smarter Approach to Your Portfolio

You’ve spent decades building your retirement savings. We believe now is the time to make your money work smarter, not just harder.

✅ Are your investments in the right place?

✅ Are you drawing income in a way that reduces your tax burden?

✅ Do you have a plan for coordinating expense needs, taxes, investments, and retirement income together?

That’s the potential power of coordinated retirement planning.

If you’re not sure, we’re here to help.

Let’s look at both your asset allocation and your asset location and design a plan that helps support the retirement lifestyle you’ve worked so hard to achieve.