Which IRA should you use?
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Increase your portfolio value by an estimated 15% over 30 years.
Tax-Coordination™ optimizes and automates a strategy called asset location. It starts by placing your assets that will be taxed highly in your IRAs, which have big tax breaks. Then, it places your lower-taxed assets in your taxable accounts.
Our research shows that this strategy can boost after-tax returns by an average of 0.48% each year, which approximately amounts to an extra 15% over 30 years.1
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1 The estimated additional annualized return of 0.48% assumes that the initial balance is equally distributed across three types of accounts: a taxable account, a tax-deferred account (such as a traditional IRA) and a tax-exempt account (such as a Roth IRA). They also assume a 70% allocation to stocks across the entire 30-year period, and a California resident in a 28% federal tax bracket both during the entire period, and at liquidation. The incremental return was calculated using the Monte Carlo projection method across more than 1,000 simulated market scenarios. It compared the total after-tax value of all three accounts when managed by TCP to the benchmark, which was the after-tax value of all the accounts under the same market scenarios, but uncoordinated (i.e. managed by Betterment separately, as standalone Betterment portfolios). As such, these projections make no claim about the value of Betterment's service as compared to any particular non-Betterment investing strategy. Instead, they estimate specifically the value of the TCP service, as applied to Betterment's baseline passive investing strategy. There are additional assumptions around these estimates, which are necessarily numerous and complex, due to the nature of this projection method. TCP may not be suitable for taxpayers subject to a Federal tax bracket of 15% or lower. You should not use TCP to coordinate accounts with materially different time horizons. TCP is not optimal for accounts which you rely on for liquidity in case of unforeseen circumstances. For much more on this research, including additional considerations on the suitability of TCP to your circumstances, please see our white paper and our full disclosures.