Choosing between taxable and
tax-deferred
accounts is a strategic decision, as is deciding which assets
to emphasize in each type of account. The bottom line is that
putting money into tax-deferred accounts postpones any tax you
owe on your earnings and sometimes on your contribution as well.
On the other hand, any long-term
capital
gains
in your taxable accounts are taxed at a much
lower rate than your regular income or income from tax-deferred
accounts. Also, with changes in the tax laws that took effect
in May 2003, many stock dividends and mutual fund distributions
are now taxed at the new, lower long-term capital gains rate.
Long-term capital gains in your taxable accounts are taxed at
a rate at least 5% lower than your regular rate, and if you’re
in the highest federal tax bracket, at a rate 20% lower.
