Betterment has a new automated way to avoid taxes on your investments
By Suzanne Woolley
“Tax drag” doesn’t sound very pleasant, and it isn’t. It’s the friction that taxes inflict on your investment returns, robbing you of easy, risk-free additional money you could be making to live on in retirement.
Why aren’t you making it? Because it means spending time thinking about taxes. And not just taxes, but the even more stultifying topic of tax efficiency.
But when you think about amassing more assets for retirement without (a) hoping and praying for higher returns, and (b) having to save even more than you already are, it starts to sound pretty good. At least, that’s what the automated-investment service Betterment hopes, as it announces a new algorithmic service today that minimizes tax drag.
Betterment estimates that a typical customer with all three types of account—taxable, tax-deferred (such as a traditional IRA), and tax-exempt (a Roth IRA)—could boost his or her portfolio’s return by 0.48 percent a year, or 15 percent over 30 years.