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The really inefficient funds are bond and REIT funds. Those pay unqualified dividends that are taxed at your full marginal rate. You should try to own those inside your IRA or 401(k), especially a Roth IRA.


I agree that the bond and REIT funds are more tax efficient for the holder of the fund if purchased in an IRA or 401K. That way you don't pay taxes until you take the money out. I actually think that REIT funds own the most tax efficient companies since their companies don't get double taxed like other companies that pay dividends. A Citigroup pays taxes on their earnings at a very high rate plus stockholders pay taxes at usually a 15% rate on dividends that have already been taxed.
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