I'm a friend so how you hold your investments will play a significant role in the taxes you pay don't make the mistake by being ignorant about where to place your assets this is called asset location it's a critical critical factor of your retirement planning and investment manager to go hand-in-hand so let's dive right into this take my purple Oh pretty good there so we're gonna draw three buckets all right good looks like you can see that pretty good all right so we got three buckets we can have a taxable count we're gonna have a tax deferred we're gonna have a tax free which would be a Roth now we're not using life insurance or Vera or annuity z-- here no life insurance no dude is just good old-fashioned investments all right so what we're seeing here let's just see we got a million bucks for simplicity what a lot just we got let's say a hundred thousand bucks we'll make a simple hundred thousand dollars what a lot of people will do and this I've seen this a million times in Sunday so you got a hundred thousand dollars all right we're gonna say you got fifty thousand in here and 25 here and 25 here all right so what a lot of investment advisers will do say look you're a 60/40 stock to bond or we didn't say 50/50 stock device will do let's say 5050 if you're a 50/50 investor 50% stocks fitrah cent bonds and what they'll do is we'll put 25 thousand here they have 12.5 12.5 25 25 25 or 12.5 and 12.5 so they're do 5050 across the board I cannot tell you how many times I've seen this and this takes me up it furies me all right so the problem with this is that this right here is a stocks this right here is the stocks and that's the stocks stocks are always other than short-term capital gains qualified dividends and long-term capital gains are always and everywhere attacks less than ordinary income so anything that comes out of here is tax as oh I ordinary income that's your tax deferred your 401k IRA it doesn't matter anything that comes out of here is taxes as ordinary income oh I at least really something here real quick all right so that's not good we don't want no one we want to minimize the line but Josh how do I minimize the wise bear with me my friends don't get paid don't get too rushing against a patient on your show yeah sure that's dry all right now in this account this right here is taxed at oh by that's bonds or it's taxes zero if it's tax-exempt municipal bonds all right this right here most likely and this is short term capital gain because you're doing a lot of trading is taxes q di or LTC G so this is a lie all right so basic what's happening here we have this come anything that's in this it doesn't matter for stocks or bonds either come out our taxes oh why that's 20.5 is taxed as qualified dividends for long term capital gain both qualified dividend or long-term capital gain or tax more favorably than ordinary income right now you could have me Nussle bond income don't do that I can share with you why even though municipal bonds tax-exempt EWP's I should have tax exempt income no you're making a huge mistake what comes out of your auth courses tax-free no I just say zero there's no tax a zero percent it's tax-free so the Roth is obviously beneficial all right so you see how that shake now so far so what we want to do here then is we're saying here's our stocks in the IRA here's our stocks here which is more favorable from a tax perspective stocks in your IRA or stocks in your taxable account you want to take a guess it's right here stocks your taxable account because of taxes QDI or long-term capital gains and these can be 0 15 and 20 0 15 and 20 and then he adds a 3.8 percent Obamacare surtax if you need net investment income tax but that's only if you have income if you're over $200,000 single or 250 filing jointly this will be 10 12 22 24 and you know so on and so on so anything so basically if you are here if you're a 10 or 12 percent tax bracket you won't pay any long-term capital gain or qualified dividends if you're on the 20 to 24 it'll be 15 and I can't remember 33 I think 33 is also the 15% if you're above that it'll be a 20 so every single time qualified dividend income essentially you owning stocks that are invested in a bank or something like that or was the what's a good apples got dividend it's qualified dividend income that would be taxed every single time - lower than ordinary income every single time qualified dividends will be taxed lower than ordinary income so by having stocks in your IRA you're literally converting what was a more favorable tax treatment to a less favorable tax treatment every time every time now people say but Josh I have to pay taxes why have that account anyway there's a 1099 at the end of the year 1099 dividend 1099 in 1099 dividend int I forgot what the other one is no you don't if you have an ETF that doesn't have Vanguard ETF you might have some dividends in there but you have growth-oriented DTS you don't have hardly any dividends there's no turnover in terms of capital gains so you do not need to pay taxes on here because the argument is at least some get tax deferred here at least I'm not where I'm not having to pay 1099 income every single year in this account because it's a tax deferred well you don't have to get 1099 income in this account if you manage it correctly with an ETF exchange-traded fund you just get a vanguard vo oh and you're done we have a little bit of dividends probably is it gonna be much probably not but either way it's still more favorable than what is coming out to Pike later on down the road which is ordinary income and if you get a growth-oriented ETF there's not gonna be hardly any dividends if any whatsoever so anyway what you're doing by having bonds or stocks in your IRA and then no stock and then what you're doing stocks in your IRA is you're taking was more favorable treatment of stocks and making it less favorable to more favourable to the IRS absolutely on top that what you're doing here is you're buying a missile if you're buying a municipal bond or if you buy a corporate bond it doesn't matter corporate bonds tax that ordinary income all right so let's go back to this here real quick so did I solve the riddle with stocks we don't want stocks in art IRA we want stocks and taxable accounts we'll get the Roth here in just a second but now we've also got 12 we've got twelve thousand five hundred and bonds so a corporate and government bonds he goes ordinary income tax municipal bonds equals tax-free all right for the most part just some sort of missile private place of bumps up but they were just tax-free so a corporate bond will say pays three percent but a missile bonds paying we have 1.75 well we'll just see all right so if a corporate bond is your tax that will just say twenty was twenty two percent tax bracket minus twenty two percent what is your net corporate bond tax so we got three minus twenty two percent two point three four so even after tax we're paying ordinary income on that tax if I'm getting three percent of the corporate bond after tax my after-tax yield is two point three four which is significantly higher than that right there the one point seven five in fact two point three four of months one point seven five / yeah that's nearly that's an over thirty percent increase in yield even factoring the taxes have to pay so a lot of people make this mistake so say I'll have been missile bonds because it's tax free not realizing that corporate bonds even minus tax is going to be paying a lot more generally speaking than Minnesotans and people make that mistake all the time so no we don't want me initial bonds in our tax lookout it doesn't make sense now can you find deals on suppose sure absolute our friend out California he was getting some 5% tax freeze in California I mean you can't beat that are you gonna be able to get those today I guarantee you can unless you're paying a pretty significant premium all right so we don't want tax exempt bonds I mean again this is a generalization there are cases where it makes sense but we don't want tax exempt bonds and remember tax exempt bonds are part of your provisional income rules too so don't think I'm gonna reduce my Social Security taxes because I own me tussle bonus no you're not you just not the tax exempt bonds are part of your modified adjusted gross income there's certainly part of your provisional income as well how are your provisional income as well so no munis all right now but however what happens here we have so now what we've done here we got ordinary income on these bonds and now we have ordinary income on stocks does that make sense so essentially what we've done now is of the four we got one two three four four of three of those and we have cuteville just say QDI long-term capital gain QDI LTC G all right so we've got four different accounts here stocks and bonds and two different accounts we've got stocks bonds stocks bonds of those four three are going to be taxed as oh I ordinary income so we've got ordinary income or two income one two three and we got one long-term capital gain qualified dividend that's not the right answer because asset well again what we've done here is we're taking what was going to be taxed as ordinary income tax the qualified dividend or putting it taxes ordinary income we don't want to do that don't make that mistake so what we want to do instead I think I've solved the dilemma if we should have Missal bonds I do believe that I think I've challenged you to some degree that when we have stocks inside an IRA we've taken a taxable tax favorable treatment of an investment and we made a tax less favorable so what we want instead as we want we have 25,000 bucks we want 25 thousand and stocks right and then here we have 50,000 total and here where we have we had before we had 75,000 yeah we had 75,000 bucks so 75,000 divided by two so we're going to have 30 25 all right so we're gonna have 30 7500 no no we not hold on to a second but will almost 25 we're gonna have 12 5 and here stocks and the rest would be bonds which would be uh was that 20 we have say 5000 so hold on just a second plus 25 minus 75 37 5 in bonds ok good ok so now what we have now we have 3 we got 1 as QDI and 2 as ordinary income all right so we've eliminated one ordinary income taxable consequence that we said we're not gonna pay tax on that ordinary income we're gonna get the Roth in just a second all right so we're saying we got 25 so we're still a 50/50 investor we're still 50 and 50 so we haven't increased our risk tolerance all but what we've done instead is we've said we're gonna make this more tax efficient we still need to have 37,500 of stocks but we're gonna put the bulk into our taxable account and we got thirty seven thousand five hundred bonds of course else would be all corporate bonds because they all come out of ordinary income so essentially immediately giving ourselves a tax cut immediately we have because we have 25,000 out taxes QDI whereas before we only had 12,500 taxed at QDI that makes sense so as literally now we have on 75,000 we have thirty seven thousand five hundred plus we have fourteen basically fifty thousand we had 37 thousand five hundred and bonds plus we had 12 no no we have 30 we had a 25 25 plus 12 5 at camera bandwidth we had to a 3/4 of the $75,000 was tax as oh I now we don't have 3/4 but now we have 25,000 over 75 we have 1 we have 2/3 of right yes we got yeah 2/3 so before we had 3/4 we have 75% taxes oh I now we have only 66 percent tax oh I the rest is taxed at QDI which is good all right so now what we want to do though we've got to incorporate the Roth so let me show you something else here to don't forget this 20 flinthead let's just keep going we're gonna incorporate the Roth all right so now we've now changed we have a hundred percent stocks our tax will count but we still have 12,500 of stocks in this account now we incorporate the Roth we have 12,500 and bonds all right we don't want 12,500 bonds because bonds should never be in a Roth they should have been a raw so what we want to do is you want to move these bonds over here and these stocks over here because what we want to do this is comfortable so I got QDI oh I tax-free so we want to move those bonds to this account and move those stocks to that account so what we're gonna do is we're gonna have we're gonna have 50,000 bonds 25 stocks all right so we're back to a 50/50 portfolio we still have 50 50 50 percent stocks 50% bonds but in this case we have oh I we have TF and we have QDI so now we have 50 percent of our portfolio is only oh I whereas before a 66 percent of our portfolio is a why before that 75 percent of our portfolio it was only oh I but now we have a third of our portfolio was that a fourth of our portfolios tax-free and a fourth of our portfolio is qualified dividend income and that's beneficial and that's how you should have it without question now now here you want your dividend payers your reads if you ever gonna have bonds be high-yield here you want your small companies growth and growth stocks no dividend payers now look this is if you have dividend payers in there it might get screened to help them no I'm just saying at the other day ideally we have no transactions no taxable gains on 1099 income at all which is small companies that particularly because usually more small companies don't pay a dividend not we don't want to turn over we just don't want dividends and grow stocks of small caps generally are the least ones that gonna pay a dividend here we're gonna want to have dividend payers large companies because the dividends all come out tax-free here right so even though QDI is better than oh I but this is better than Alphin tax-free is better the cute guy you guys better know why so essentially what we've done now is we've taken our stocks that were initially taxed as oh i we mean of tax a QDI but now we're saying screw that we're gonna have a tax tax-free and now what we have with stocks that before were taxes though i they might be taxes QDI but or long-term capital gain but it won't because these small companies with growth how are they have any dividends and because they're ETFs the ronpa need transactions in terms of short-term capital gain or long-term capital gain now we have all corporate bonds too so we no longer to have any municipal bonds all corporate bonds and that's just I mean that's the way it works so we've done again we for you plus 50% of why we used to have a good amount in QDI now we don't have anything at QDI you'll probably get a little bit but not much and we used to have a bunch of bonds and tax-free bonds give you no growth so now we no longer have bonds in tax-free we just have growth orient stuff that pays a dividend which is great now the benefit here too is don't forget this entire twenty five thousand it grows you know transfer tax free to heirs alright so there's an entire life Harris heirs there's a tire 25000 so if it grows to a hundred thousand the entire thing transfers tax-free to Erik's because of the step-up basis rules I start with a twenty five thousand dollar cost basis I die it's worth a hundred thousand dollars because of appreciation my kids get a hundred thousand dollars and step up is their cost basis they can sell it the next day and I'll pay any taxes whatsoever same thing here too another reason we don't want bonds we want this guy to grow as much as possible because that transfers tax-free as well because this does not transfer tax-free gross sixty six thousand let's just say it still comes out ordinary income so now what we've done is we increased our momentum our earnings here the transfer tax-free reduce their own taxes reduce the taxes to our heirs reduce their own taxes reduce the taxes to the heirs because this transfers tax-free this transfers tax-free and because these are growth oriented investments we're gonna get the most bang for our buck lastly because bonds don't grow hardly at all I mean I mean you know they're gonna reinvest the bonds well whipty-doo is so you might get 3% 2% so I like that let's just say three it grew as a sixty six thousand that is all taxed to the heirs on the first dollar as ordinary income two hundred thousand transfers tax-free sixty six thousand transfers taxes oh I ordinary income set location if you don't you're paying way too much in taxes if you have a broker or a guy financial guy or fiduciary and they're putting you all in the same asset allocation with your stock with your traditional IRA or 401k yeah your tax will count your Roth you got to find someone new that God isn't always doing it's just over the way around that I hope this helps smash the like button I'd like to hear what you think on this it's a big deal so don't forget to subscribe hit the bell for notification and of course Hipp give me a thumbs up we'll see ya
