Earn Rewards: Sign up now and earn a special reward after your first deposit. See offer details



Save, invest, retire

GET — On the App Store


Concerned about market volatility? We've got answers and guidance for you. See videos


What is Tax Coordination? How Asset Location Works at Betterment

What is Betterment's approach to asset location? It's called Tax Coordination, and it's a built-in tax optimization strategy for retirement goals at Betterment.

Articles by Betterment Editors
By the Editorial Staff Betterment Resource Center Published Feb. 27, 2019
Published Feb. 27, 2019
2 min read
  • If you are investing in multiple accounts, a sophisticated tax optimization strategy known as asset location can increase your after-tax returns.

  • While asset location requires detailed, continual work if you're trading on your own, our approach is Tax Coordination, which is built in to retirement goals at Betterment.

If you are investing in multiple accounts, a sophisticated tax optimization strategy known as asset location can increase your after-tax returns.

While asset location requires detailed, continual work if you’re trading on your own, our Tax Coordination approach is automated, and is built into retirement goals at Betterment.

Our Tax Coordination feature optimizes and automates a strategy called asset location for your retirement goals. Asset location can deliver additional after-tax returns while still maintaining your desired level of portfolio risk.

This advanced tax optimization strategy leverages our retirement goal setup, which allows you to manage multiple account types as a single goal-based portfolio. Tax Coordination then places assets that are taxed at a higher rate into accounts that are sheltered from taxes, like IRAs.

How does asset location work?

The potential after-tax returns you can earn with Tax Coordination are based on three basic factors.

  1. Your allocation of stocks and bonds. Your retirement goal’s portfolio has a specific allocation of stocks and bonds. Since each type of investment is taxed differently, your allocation can have a big impact on how Tax Coordination works.
  2. Your balances in each account type. Tax Coordination doesn’t change your initial balances that you’ve deposited within each separate account type, so if you’re just getting started at Betterment, your initial deposit or rollover can shape the impact of Tax Coordination.
  3. How long you plan to invest. Sheltering certain assets from taxes has a greater effect over time, because more money stays in your portfolio and it can keep growing.

Why does Tax Coordination lead to extra after-tax returns?

Tax Coordination automates the process of asset location. Asset location means buying your least tax-efficient assets in the accounts taxed most favorably, and the most tax-efficient assets in the accounts that are taxed least favorably. This is done while maintaining the desired risk level you’ve set for your overall retirement portfolio.

Normally, asset location within a globally diversified portfolio is a complex, mathematically rigorous, and continuous undertaking. Tax Coordination is Betterment’s way of making it easy—it’s built into every retirement goal. Tax Coordination is the automated implementation of asset location that is tailored to each investor’s personalized retirement goal.

How to Set up of Tax Coordination for Your Retirement Goal

When you set up a retirement goal at Betterment, we’ll ask you about your income and tax bracket, and if you fall into a qualifying tax bracket, we’ll recommend that you turn on Tax Coordination. In just a few clicks you’ll be set up.

Once your retirement goal is open, you’ll notice that you’ll have a taxable account within the goal by default. This account will leverage Tax Coordination if you contribute outside of your IRAs and/or a Betterment 401(k) plan. Tax Coordination also works if you only have a traditional IRA or 401(k) and a Roth IRA or 401(k), because traditional and Roth accounts are taxed differently.

Learn More about Tax Coordination

We’ve created a quick guide that walks you through some of the most frequently asked questions about Tax Coordination.

Learn more about Betterment’s approach to asset location in the Tax Coordination methodology. There we provide a detailed exploration of how the advanced tax optimization works. You should also review the Tax Coordination disclosure.


Recommended Content

View All Resources

6 Ways to Retain Top Talent with Financial Wellness

Beyond just handing over a paycheck, supporting your employees’ financial wellness plays a crucial part in retaining top talent.

What’s Inside the Betterment Portfolio Strategy?

Explore the asset classes in Betterment's recommended set of portfolios. Then, take a look at the exchange-traded funds (ETFs) underlying each part of the portfolio strategy.

Should Your Small Business Offer a 401(k) Plan?

When deciding on employee benefits, it can be hard to determine which are right for your small business. These days, more employers are recognizing the importance of financial wellness and how it attracts and retains top talent.

Explore your first goal

Cash Reserve

Our high-yield account built to help you earn more on every dollar you save.

Safety Net

This is a great place to start—an emergency fund for life's unplanned hiccups. A safety net is a conservative portfolio.


Whether it's a long way off or just around the corner, we'll help you save for the retirement you deserve.

General Investing

If you want to invest and build wealth over time, then this is the goal for you. This is an excellent goal type for unknown future needs or money you plan to pass to future generations.

See details and disclosure for Betterment's articles and FAQs.