Checklist #23 · Investing
Tax-Efficient Investing
Reduce your tax drag on investment returns through smart account selection, asset location, tax-loss harvesting, and holding period optimization.
23 action items~20 min to complete4 sections
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Optimize Asset Location
0/5 completed
Understand the three account tax types: tax-deferred (401k/trad IRA), tax-free (Roth), taxable (brokerage)Key
Place high-turnover, high-income assets in tax-deferred or Roth accountsKey
Hold low-turnover index funds and buy-hold equities in taxable accounts
Place assets with highest expected growth in Roth accounts
Review tax location across all accounts annually — especially after job changes or rebalancingAction
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0–20%
Long-term capital gains tax rate (vs. up to 37% for short-term gains)
0.5–1%
Annual drag of poor tax location on a $500K portfolio — $2,500–5,000/year
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Choose Tax-Efficient Investments
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Prefer index funds over actively managed funds in taxable accountsKey
Use ETFs over mutual funds in taxable brokerage accounts
Avoid high-dividend funds in taxable accounts if you're in a high tax bracket
Confirm your funds' 'tax cost ratio' using Morningstar dataAction
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Harvest Tax Losses Strategically
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Review taxable account holdings annually for unrealized lossesKey
Immediately reinvest proceeds into a similar (not identical) fund
Observe the 30-day wash-sale rule strictlyWatch out
Use harvested losses to offset gains and up to $3,000 of ordinary income per year
Don't let the tax tail wag the investment dogWatch out
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Optimize Timing and Holding Periods
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Hold investments at least 1 year and 1 day to qualify for long-term capital gains ratesKey
Defer capital gains into new tax year where possible
In retirement, draw from accounts in the optimal tax-sequence order
Coordinate Roth conversions with low-income yearsAction