Skip to main content
No. of Recommendations: 4

You wrote, Personally I wouldn't pt bonds in a ROTH.

I'd put equities as they generally grow faster and in 30 years when they are 10 times larger vs. bonds, no taxes on them.

I look at it differently. Income from corporate bonds is taxable at your marginal rate whether in a retirement account or in your taxable account. Capital gains and qualified dividends are taxable at your marginal rate when drawn from your retirement accounts; but receive a preferred rate in your taxable account.

That means you need more income from a (taxable) bond to overcome the tax advantage equities enjoy in taxable accounts. There is no such tax disparity in retirement accounts.

So all things being equal - assuming you are going to stick to a particular investment mix across all your accounts - I would lean to having corporate bond holdings in retirement accounts and equities and qualified dividend paying issues in taxable accounts. The capital gains rules can help you defer taxes in your taxable accounts and it can mitigate them when you sell to realize a profit.

Obviously it would be crazy to put tax-exempt bonds in a retirement account. But preferring capital gains-advantaged securities in your taxable accounts would seem to be the optimal strategy - assuming the funds are intended for essentially the same time-frame.

- Joel
Print the post  


What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.