The Benefits of Tax Coordination
We’ve automated asset location which can help you save on taxes over time.
Betterment’s Tax Coordination service is our fully automated version of an investment strategy known as asset location—and it comes at no extra cost to you.
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.
Once you’ve set up your Tax-Coordinated Portfolio (TCP), we will manage your assets as a single portfolio across all included legal accounts, using every dividend and deposit to optimize the location of the assets. We’ll also rebalance in order to improve your asset location when we see opportunities to do so—without causing taxes.
We’ll generally place assets that we expect to be taxed at higher rates in your tax-advantaged accounts (IRAs and 401(k)s), which have big tax breaks. We’ll generally place assets that we expect to be taxed at lower rates in your taxable account, since you’ll owe taxes on dividends and any realized capital gains each year.
You could benefit from Tax Coordination if…
- You are investing in at least two of the following types of Betterment accounts for retirement:
- Individual Taxable account [Retirement or General Investing]
- Tax-deferred account [Traditional IRA, SEP IRA, or Betterment for Business 401(k)]
- Tax-exempt account [Roth IRA or Betterment for Business Roth 401(k)]
- You are investing for the long term and your coordinated goals have the same time horizon.
We don’t recommend Tax Coordination if…
- Your federal marginal tax bracket is 12% or below.
- The accounts you plan to coordinate have different time horizons.
- You plan to make a significant withdrawal in the near future from only one of the goals you are considering including in your Tax-Coordinated Portfolio.
How to Do a Direct IRA Transfer
If this is your first direct IRA transfer, don’t worry. We help process direct IRA transfers every day, and we’re here to make it as easy for you as possible.
Understanding Inherited IRAs
Learn what inherited IRAs are, how to roll over your inherited IRA, and other considerations you may want to be aware of.
Can You Have a 401(K) and an IRA?
This is a great question. The answer is yes, you can have both. Should you have both? It depends.
Explore your first goal
Our high-yield account built to help you earn more on every dollar you save.
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.
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.