My taxable account might be my favorite account. It holds about half of our retirement assets, is immediately available, and is more flexible than any other account we own.
When I first opened one, I didn’t have a guide like this. I bought actively managed, tax-inefficient funds. I didn’t know what tax loss harvesting was.
As I learned more, I actually employed several of the strategies outlined here to get to a spot where my taxable account holds everything I want and nothing that I do not.
Whether you choose tax-free or tax-deferred, both are almost always better than taxable in the long run, from an investing return standpoint, a tax standpoint, an asset protection standpoint, and a simplicity standpoint.
You have a written asset allocation, are saving an adequate amount, and are following your plan. In the long run, that matters far more than a few bucks in taxes and how much hassle your account requires.
Although there is significant debate about asset location, whether you choose to hold bonds, stocks, or both in taxable, it is best to choose very tax-efficient funds there.
# 3: Use tax-efficient funds in the taxable account
That means broadly diversified stock index funds and muni bond funds. While individual bonds are also tax-efficient and reasonable to use, they certainly introduce additional hassle and are expensive to tax-loss harvest.
As you go through the years, there are often ways to simplify and consolidate your various tax lots. Take advantage as you go along. Tax loss harvesting is one of the best ways to do this.
# 4 Simplify holdings at every opportunity possible