Asset location: which account each investment goes in

How the math works

In a traditional or Roth account, interest and dividends aren't taxed as they come in. In a regular taxable brokerage account, they are, every year. So it makes sense to keep the investments that throw off the most taxable income inside the traditional and Roth accounts, and leave the ones that are cheapest to hold in the taxable account.

For each investment, this figures the yearly federal tax on holding it in a taxable account, at your 2026 rates:

• Bonds: the interest is taxed like your paycheck.
• U.S. stock index funds: the dividends are qualified, which basically just means they get the lower long-term capital gains rates of 0%, 15% or 20%.
• International stock funds: a mix. By default I assume 70% of the dividends are qualified and the rest are taxed like your paycheck.
• REITs (real estate investment trusts): the dividends usually aren't qualified, so they're taxed like your paycheck, but 20% of them comes off your taxable income through the section 199A deduction. That deduction was set to end after 2025, and the 2025 tax law made it permanent, so it still applies in 2026.

If your income is over $200,000 single or $250,000 married filing jointly, the 3.8% net investment income tax goes on top of all of it, REIT dividends included.

The best placement fills your traditional and Roth space with the investments that cost the most to hold first, and whatever doesn't fit goes in the taxable account. The worst placement does the opposite. The difference between the two is the yearly tax you can avoid, and it repeats every year.

Inside the traditional and Roth space, stock funds go in the Roth first and bonds in the traditional account. That's not about this year's tax, since both accounts shelter it. It's that a Roth's growth is never taxed, so you'd want the investments you expect to grow the most in there, and stocks have grown more than bonds over long periods. That's an expectation, not a guarantee.

I put a lot of my high-dividend stocks, particularly my REITs, in IRAs for exactly this reason (I talk about it here). But the right answer depends on your own accounts and rates.

What this leaves out

It's a rule of thumb, not a plan. It leaves out capital gains distributions that funds pay out, municipal bonds (their interest is free of federal tax, so for people in high brackets they can make sense in a taxable account), state taxes, and the foreign tax credit. Many international funds pay foreign taxes you can usually claim as a credit in a taxable account, but not inside an IRA, which makes them a bit cheaper to hold in taxable than shown here.

It also leaves out the tax you'd owe selling something in a taxable account to move it. Rearranging inside your traditional and Roth accounts doesn't trigger tax, but selling in a taxable account can, and a one-time tax bill can wipe out years of savings. Don't sell to rearrange without running the numbers in the capital gains calculator first.

And it uses one yield per investment. Real yields change, and so does how much of a fund's dividend is qualified; your 1099-DIV shows the actual split.

Watch

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