Asset location is choosing which account holds which investments, while the overall mix stays the same. An IRA, a Roth and a taxable account are each taxed differently, so where each piece sits can change how much tax you pay over time.
In this illustration (an example couple, not a client), and the 2026 federal rates behind it
60 / 35 / 5
the couple’s mix of stocks, bonds and cash, the same before and after
Up to 37%
the 2026 federal rate on interest and traditional IRA withdrawals
0%, 15% or 20%
the 2026 federal rates on long-term gains and qualified dividends
An example, not a recommendation. 2026 federal rates by income; state taxes aren’t included.
Setting the stage
Say a hypothetical couple comes to me with 60% in stocks, 35% in bonds and 5% in cash. Their money sits in three places, with the same mix in each: 35% in a traditional IRA, 25% in a Roth IRA, and 40% in a taxable account. The couple and the percentages are an example I chose, not a client, and no returns are assumed.
Comparing the three accounts
First, let’s understand how each account is taxed.
In a traditional IRA, nothing is taxed while the money stays in, and withdrawals are taxed as ordinary income, at federal rates up to 37% in 2026, plus a 10% additional tax on most withdrawals before 59½.
In a Roth IRA, nothing is taxed while the money stays in, and qualified withdrawals come out tax-free. Generally, that means you’re 59½ or older and it’s been at least five years since your first Roth contribution.
In a taxable account, most interest is taxed each year as ordinary income. Qualified dividends and long-term gains get lower federal rates: 0%, 15% or 20% in 2026, depending on income, and higher incomes can also owe the 3.8% net investment income tax. Gains are generally taxed when you sell, though funds can pay out gains that are taxed in the year they’re paid.
Giving each piece a home
Now, let’s go back to the drawing board with the same overall investment mix (60% stocks, 35% bonds and 5% cash).
For this couple, stocks fill the Roth first, where growth can come out tax-free once withdrawals are qualified. Bonds go in the IRA, where interest isn’t taxed until the money is taken out. The taxable account gets the remaining stocks and the cash for short-term reserves.
They maintain the same mix as when they started, but now each piece has a new home. Rearranging means changing what each account holds, not moving money between accounts.
As a financial planner, I look at where each piece sits, not only at the overall mix. The goal is overall tax efficiency: placing each investment in the account that fits its purpose.
Trades inside an IRA or a Roth aren’t taxed, but selling in a taxable account can create a capital gain, and that gain is taxed. That’s why rearranging often starts inside the retirement accounts. In this example, the taxable account would still sell its bonds.
Weighing the exceptions
Not every situation is like this one. A Roth holding only stocks can swing more than the household as a whole. Some people keep their reserves in a Roth because they may need the money in a shorter time horizon, and they need to keep taxable income low (for example to qualify for marketplace health insurance premium credits or to stay within a certain tax bracket or phaseout). Your own Roth contributions can generally come out at any time without adding to taxable income, while earnings follow the qualified-withdrawal rules above.
Others keep stocks in the traditional IRA if they plan to give that money to charity. A qualified charitable distribution (QCD) goes straight from a traditional IRA to a charity, starting at age 70½. Donor-advised funds and most private foundations don’t qualify. In 2026 it can be up to $111,000 per person, it counts toward a required minimum distribution, and it’s left out of taxable income.
What fits depends on your situation: your tax bracket now and later, how much each account holds, which account you’ll spend from first, your plans for giving, and state tax.
- Stocks 60%
- Bonds 35%
- Cash 5%
The household’s mix, the same before and after. Each figure is a share of the whole household.
Illustrative couple · not a client · an example, not a recommendation
Show both arrangements
Before: the same mix in every account
| Account | Its share | Stocks | Bonds | Cash |
|---|---|---|---|---|
| Traditional IRA | 35% | 21% | 12.25% | 1.75% |
| Roth IRA | 25% | 15% | 8.75% | 1.25% |
| Taxable | 40% | 24% | 14% | 2% |
| Total | 100% | 60% | 35% | 5% |
After: each piece in a new home
| Account | Its share | Stocks | Bonds | Cash |
|---|---|---|---|---|
| Traditional IRA | 35% | 0% | 35% | 0% |
| Roth IRA | 25% | 25% | 0% | 0% |
| Taxable | 40% | 35% | 0% | 5% |
| Total | 100% | 60% | 35% | 5% |
How to read it. Each account keeps its share of the household, and the Total row stays the same. Only what each account holds changes.
Assumptions. An example couple, not a client, with 60% in stocks, 35% in bonds and 5% in cash, held in a traditional IRA (35% of the household), a Roth IRA (25%) and a taxable account (40%). Figures are shares of the household, with no dollar amounts, returns or tax results assumed. Federal rates for 2026; state taxes aren’t included. Figures: Toft Wealth calculation.
This is an illustration. It isn’t a recommendation, a forecast, or the results of any Toft Wealth portfolio, model or strategy.
If you’d like to talk through how this fits your situation, start with a call.
Sources
- IRS Publication 590-B (2025), Distributions from IRAs: traditional IRA withdrawals taxed as ordinary income; qualified Roth distributions (59½ and five years) not taxed; Roth contributions come out first; qualified charitable distributions.
- IRS Revenue Procedure 2025-32: the 2026 rate tables, with the top 37% rate, and the 0%, 15% and 20% rates on long-term gains and qualified dividends.
- IRS Topic 403, Interest received: interest is taxable income.
- IRS Topic 404, Dividends: qualified dividends get the capital gain rates; capital gain distributions from funds are taxed as long-term gains.
- IRS Topic 559, Net investment income tax: the 3.8% tax on net investment income when modified AGI is above $250,000 for married couples filing jointly ($200,000 single).
- IRS Topic 409, Capital gains and losses: a sale can realize a capital gain; long-term rates of 0%, 15% or 20%.
- IRS Notice 2025-67: the 2026 qualified charitable distribution limit, $111,000.
- 26 U.S.C. §408(d)(8): qualified charitable distributions, from age 70½, left out of income.
- IRS Publication 974 (2025), Premium Tax Credit: the marketplace premium credit depends on household income (modified AGI).
The example is an illustration: an example couple, not a client, with example percentages. It isn’t a recommendation, a forecast, or the results of any Toft Wealth portfolio, model or strategy, and it assumes no returns and shows no tax results. Investing involves risk, including the loss of principal. Tax rules change, and how they apply depends on each household’s situation. This note is general education, not personalized advice or tax advice. Toft Wealth, LLC is an investment adviser registered with the Illinois Secretary of State. Registration does not imply a certain level of skill or training. Because Toft Wealth is paid for financial planning and investment management, it has an interest in readers hiring an adviser. Clark wrote this Note from his video, with help from an AI assistant. He reviewed every figure and source.
This is general education, not individual investment, tax, or legal advice, and reflects rules and figures as of the date shown. Please read our Disclosures.
