For a household about to live off savings, tax-efficient investing with Ritholtz Wealth Management decides where funds sit, when holdings sell, and which account pays monthly bills. Done alone, the cost is usually quiet. Bond interest earned in a joint brokerage account is taxed each year as ordinary income, and growth left in a traditional IRA can hand heirs taxable distributions.
A retirement date is often the forcing event. Once the salary ends, the brokerage account may become the paycheck, and a gain sold during the final high-income year cannot be unsold after the tax forms arrive. That is when a $40K paper gain stops looking theoretical.
How much tax drag hides in the brokerage account paying your bills?
Tax-efficient investing places funds by both tax treatment and withdrawal date, then schedules sales with the tax return in view. Ritholtz Wealth Management commonly sees the issue when at least a fifth of savings is in taxable accounts and retirement is about six years away, as with a couple planning to stop work at age 58.
Once paychecks stop, interest, dividends, and fund distributions in a joint brokerage account appear on the return each year. A holding sold after more than one year may receive long-term capital-gains treatment. The work includes asset location, loss harvesting in market declines, realizing gains in lower-income years, and checking the cost basis on IRS Form 1099-B and Form 1099-DIV. Compare the Roth IRA row with the SEP-IRA row: the best home for stock growth can flip because heirs and future withdrawals face different tax treatment.
| Account | How it is taxed | What to do with it |
|---|---|---|
| Joint brokerage, $200K | Dividends yearly; gains on sale | Two years' bonds; rest stock index |
| Patrice's 401(k), $400K | Ordinary income; RMDs at 75 | Bonds; may be penalty-free after 55 |
| Teresa's SEP-IRA, $200K | Ordinary income; heirs pay income tax | Bonds; consider low-year conversions |
| Roth IRAs, $50K | Qualified withdrawals tax-free | Highest-growth stocks; spend last |
What does a useful answer sound like from a firm?
A useful answer names the tax lots, the gain, the holding period, and the IRS 30-day wash-sale window before recommending a sale. It asks for the latest Form 1099-B and Form 1099-DIV, checks IRA purchases as well as brokerage trades, and says when a small saving is not worth disrupting the portfolio. “We manage taxes for you” is not an answer. A good answer tells you which fund goes in which account, and why.
When the portfolio is not the whole tax problem
Tax-efficient investing works on the portfolio, not on filing a return or changing legal ownership. A CPA should prepare the return, calculate SEP-IRA contributions from self-employment income, and handle IRS Schedule SE. An estate attorney should address trusts, title, and community-property questions, which can change step-up math by state. Some households hold nearly all savings in a 401(k) and IRAs, with little taxable money. For them, sensible fund placement may capture most of the available benefit. And an embedded gain does not justify keeping one stock at a third of your money; diversification comes first.
Ritholtz Wealth Management traces tax choices account by account
Ritholtz Wealth Management reviews the actual holdings before proposing a trade, because a lower-expense fund is not automatically cheaper after taxes. We weigh long-term diversification and fund costs. Next quarter's market forecast does not enter the review. You receive an account map, a list of holdings that need attention, and a calendar for tax-sensitive decisions such as Patrice's planned stop at 58.
The account map comes before a trade
The calendar catches the quiet tax events
Keep taxable-account money needed within five years in bonds or cash, even when the interest is taxable.
- List every account: We record the owner, tax type, and cost basis by lot; missing or zero basis on a Form 1099-B is pursued with the custodian in writing.
- Place the holdings: Bonds generally sit in a 401(k) or SEP-IRA, broad stock index funds in taxable accounts, and higher-growth stock holdings in Roth accounts. Cash or bonds needed from taxable money within five years stay there.
- Price the change: We calculate realized gain, long- or short-term status, and the wash-sale period before a trade. A switch must repay its tax cost through lower expenses or distributions within a few years.
- Use a yearly calendar: We look for losses after market drops, review estimated fund distributions in November, and revisit basis when the 1099-B arrives. Gains are considered in the first lower-income year after paychecks stop.
How long until your first withdrawal decides where bonds belong?
The first withdrawal date decides whether bonds belong entirely in retirement accounts: money needed from a taxable account within five years stays available there, while money untouched for ten years or more can be placed by tax treatment. Ritholtz Wealth Management uses that timing before chasing a cleaner-looking asset-location chart.
“Should the bonds go in our IRAs?” Ramon, 61, and Yolanda, 59, have $1.1M and expect to use gap years for Roth conversions. Their answer is yes. Bonds in his 401(k) and their IRAs keep the pre-tax side slower-growing, while stock funds sit in Roth accounts and their $200K brokerage account.
Patrice, 52, and Teresa, 54, get a different answer. Patrice is a data scientist; Teresa is a mechanical engineer who now consults with uneven income and has a SEP-IRA. They hold $850K, including $200K in a joint brokerage account, and Patrice plans to stop at age 58. They will use that brokerage account first, so two years of spending remains in bonds and cash there, despite ordinary-income tax on the interest.
For illustration, Patrice and Teresa own a $100K stock index fund in that joint account. They bought it for $60K, so the unrealized gain is $40K. If Patrice dies first in a common-law state, his half generally receives a step-up: Teresa’s $30K half of the original basis plus Patrice’s $50K half at current value gives an $80K basis. Her taxable gain falls from $40K to $20K. At Teresa’s later death, their daughter’s basis generally resets to market value; the same $40K of growth inside Teresa’s SEP-IRA receives no step-up, and an assumed 24% tax on that amount would be $9,600 when their daughter takes taxable inherited-account distributions.
Index funds can fall in any account, including money you originally invested. Selling the brokerage fund during Teresa’s strongest consulting year to tidy the accounts could create a $6K federal tax bill on the $40K gain under an assumed rate; check current IRS long-term capital-gains thresholds. A lower-income year after work ends, or holding for a potential step-up, can produce a different result. Reported income can also affect health-insurance costs before Medicare, so that connection belongs in the calculation.
The same bond question, two answers
A taxable fund can matter to a surviving spouse
Your questions about tax-efficient investing, answered
Is it worth selling a high-turnover mutual fund in a taxable account if it means paying capital gains tax now?
Yes, if the expected yearly tax and fund-cost savings can repay the sale tax within a reasonable few years. Ritholtz Wealth Management calculates the gain by lot, the holding period, and expected distributions first. A $2K saving does not justify a $15K tax bill merely because the replacement fund looks cleaner.
Which usually costs less in tax: a municipal bond fund in a taxable account or a taxable bond fund inside an IRA?
A taxable bond fund inside an IRA usually avoids yearly ordinary-income tax, while a municipal bond fund may fit a taxable account. The better choice still changes if taxable-account money must cover spending soon. Compare the bond’s income, your state’s rules, fund expenses, and the account’s withdrawal date.
Can we change which fund sits in which account after we retire without triggering a tax bill?
Yes, changes inside IRAs, 401(k)s, and Roth accounts generally do not create current taxable gains, but selling in a brokerage account can. Ritholtz Wealth Management can use new contributions, withdrawals, and trades within retirement accounts to improve placement gradually. A taxable sale is considered only after checking basis and the year’s income.
When do the brokerage tax forms arrive each year, and what should we check on them before filing?
Brokerage tax forms usually arrive early in the year, and corrected forms sometimes follow. Check IRS Form 1099-B for cost basis, acquisition dates, sale proceeds, and whether each sale is reported to the IRS. Also compare Form 1099-DIV distributions with your account records before the return is filed.
Bring the tax paperwork, not a shoebox
The first conversation with Ritholtz Wealth Management covers account ownership, planned withdrawals for the next five years, and large embedded gains. Households anywhere in the country can meet over video or by telephone. The $500K investable-asset minimum and the fee come up in that same call, and you get the fee in writing before work starts.
Bring the latest 1099-B and 1099-DIV for each brokerage account, cost basis by lot, 401(k), SEP-IRA, and Roth statements, beneficiary designations, and your most recent Form 1040. This is not a test. Missing basis is common, and it changes what a sale really costs. Send a note through the site’s request form to set a time.
A taxable account is often the first retirement paycheck, so its tax choices deserve more than an annual glance.
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This article provides general information only and is not individualized investment, tax or legal advice. Investing involves risk, including the possible loss of principal. Talk to a qualified professional about your specific situation before making any financial moves.