The final advantage discussed by Ben from EWA regarding Roth IRAs revolves around “asset location.” This strategy involves placing less tax-efficient funds within more tax-efficient accounts. In the context of Roth IRAs, this means you can house funds such as real estate and value funds, which aim for robust growth, without incurring taxes on the generated growth or distributions.
Ben emphasizes the potential for 100% equity exposure, particularly focusing on real estate and value funds, as these funds might generate capital gains and dividends annually. By holding them within a Roth IRA, these tax implications are avoided, in contrast to a taxable account where one could face taxes as high as 37% on such gains and dividends.
So asset location is our fifth and final advantage of a Roth IRA. And what asset location means is that you could hold inefficient funds inside of efficient accounts. And what that means from a Roth IRA standpoint is that you could hold funds like real estate funds, like value funds funds seeking the most growth because, again, all of that growth is tax free and it distributes tax free as well.
So we’re looking to have significant equity exposure typically 100% equities inside of a Roth IRA with real estate and value funds in particular. Those funds are called inefficient because they kick off capital gains and dividends every year.
And if those are held inside of a Roth IRA you’re not subject to tax on that every year because all the growth and the distributions are tax free. Whereas if those real estate and value funds were sitting in a taxable account, for example those capital gains and dividends that are kicked off you would be subject to those at your ordinary income rate which could be as high as 37%.
In 15 minutes we can get to know you – your situation, goals and needs – then connect you with an advisor committed to helping you pursue true wealth.
EWA, LLC dba Equilibrium Wealth Advisors, is an SEC-registered investment advisory firm providing investment advisory and financial planning services to clients.
Investments in securities and insurance products are not insured by any state or federal agency.
To view EWA’s public disclosure, registration, Form ADV and Part 2B’s, click here.
To view EWA’s Client Relationship Summary (CRS), click here.
