process
Asset Location
The rule
Keep the tax-heavy holdings in the tax-free box, the tax-light ones outside.
Where it flips
Chasing perfect tax placement can trap money in accounts you cannot touch till old age. The repair is to keep some reachable savings first, then optimise the rest.
Some accounts, like PPF or the retirement funds, protect your money from tax. Some holdings get taxed a lot; others hardly at all. Put the tax-heavy ones inside the protected box, and the tax-light ones in your normal account. Same investments, but you keep more money after tax. It costs nothing to arrange them well.
A worked example
Haridya moved her most-taxed holdings into her tax-free retirement account. Same funds, but she saved thousands in tax each year. [illustrative]
How to spot it
- ·Your most-taxed holding sits in a normal taxable account
- ·You never used the tax-free space you have
- ·You pay tax that a simple swap would remove
J. L. Collins · The Simple Path to Wealth