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.
Health Savings Accounts: The Sharpest Tax Tool In The Shed?
As an investor, you may be thinking about funding an HSA but are unsure about whether it is a useful financial planning tool. Here are six different scenarios for how an HSA can work for you.
Why You Should Consider Converting Your IRA
If the market is down, you might be doing your future self a favor by converting all or some of your Traditional IRA into a Roth IRA.
How would you like to get started?
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