How Smart Asset Location Can Help You Keep More of Your Retirement Savings
Jeremy Keil explains how smart asset location impacts your retirement savings by lowering your taxes.
When you think about your retirement investments, what comes to mind first?
Stocks, bonds, mutual funds — maybe your 401(k) or IRA?
Most retirees I meet have spent decades saving and investing. But here’s the surprising part: even after doing everything “right,” they may still be giving away thousands of dollars in unnecessary taxes each year.
Why? Because of where their investments are held.
It’s called asset location, and while it sounds like a minor detail, it can make a major difference in how much of your money you actually get to keep.
Let me show you what I mean with the story of Mike and Sue.
When Doing Everything “Right” Still Costs You
Mike and Sue were like many retirees I meet. They had done well — $1 million in a regular investment account and another $1 million in a traditional IRA. They had built a solid nest egg, invested in a balanced 60/40 portfolio, and were withdrawing $7,500 per month to cover their expenses.
They were even withholding taxes properly — taking 20% out each month so they’d end up with $6,000 in their checking account.
Sounds great, right?
The problem wasn’t how much they saved.
The problem was where their investments were placed.
Their advisor had put the exact same 60/40 portfolio — 60% stocks and 40% bonds — into both their regular account and their traditional IRA. On the surface, it looked perfectly diversified. But underneath, it was a tax trap.
Why Asset Location Matters
Here’s how it works:
In your regular, non-retirement accounts, you pay taxes on interest, dividends, and capital gains every year. But not all income is taxed the same way.
- Interest from bonds is taxed as ordinary income — the same rate as your paycheck.
- Dividends and long-term capital gains, however, often qualify for lower tax rates — sometimes even 0% for retirees in the 12% tax bracket.
Meanwhile, in a traditional IRA, you don’t pay taxes as your investments grow — that’s the “tax-deferred” part. But when you withdraw the money, every dollar is taxed as ordinary income, no matter where it came from — stocks, bonds, or dividends.
So when Mike and Sue’s advisor split their investments 60/40 across both accounts, all of the growth, dividends, and capital gains in the IRA were being taxed later at higher income tax rates, rather than the lower capital gains rates they could have used.
In other words, the advisor had created a plan that looked balanced but was unnecessarily expensive.
A Simple Shift, A Big Difference
I showed Mike and Sue what would happen if they adjusted their asset location — not changing their overall risk level or investment mix, just moving where their investments lived.
Instead of splitting both accounts 60/40, they could put:
- More of their stocks in the regular account, where dividends and long-term gains are taxed at lower rates.
- More of their bonds in the traditional IRA, where the interest would have been taxed at the same income rate anyway.
This simple shift — stocks in the taxable account, bonds in the IRA — could save them nearly $2,000 per year without changing their investments at all.
Taking It a Step Further: Planning for Future Taxes
Once we fixed the immediate tax issue, we took the next step: reducing their future taxes.
You see, Mike and Sue had been withdrawing $90,000 per year from their traditional IRA to live on. Instead, I suggested they live off their regular account for a few years and use that same “taxable income budget” to do Roth conversions.
That way, they’d move money from their traditional IRA into a Roth IRA, paying today’s lower tax rates instead of potentially higher rates later. The Roth would grow tax-free for the rest of their lives — and could even pass to their kids tax-free too.
This is what smart retirement planning is all about — not just how to invest, but where and when to take money so you can keep more of what you’ve earned.
Don’t Let the IRS Decide How Much You Keep
You’ve worked too hard to let poor tax placement eat away at your retirement income.
A thoughtful asset location strategy — combined with the right withdrawal and Roth conversion plan — can mean thousands more dollars staying in your pocket each year and a smoother, lower-tax retirement over time.
If you want to see exactly how this works and what mistakes to avoid, I walk through Mike and Sue’s full story in my video, “How to Save Thousands in Retirement with Smart Asset Location”.
And if you’re ready to get your own personalized plan to get more income, pay less in taxes, and avoid big retirement mistakes, visit KeilFP.com to learn more.
Because you deserve to enjoy your retirement — not just fund it.
About the Author:
Jeremy Keil, CFP®, CFA® is a financial advisor in Milwaukee, WI, author of the bestseller Retire Today: Create Your Retirement Master Plan in 5 Simple Steps and host of both the Retire Today Podcast and Mr. Retirement YouTube channel
Links:
- Buy Jeremy’s book – Retire Today: Create Your Retirement Master Plan in 5 Simple Steps
- Learn how to build your retirement masterplan plan at FiveStepRetirementPlan.com
- Work with my team to get more income, pay less in taxes, and avoid big retirement mistakes: KeilFP.com
Disclosures
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