The Benefits of Tax Coordination

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.

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.

Learn More

• FAQ: Understanding Tax Coordination
• Tax-Smart Investing Using Asset Location
• How Asset Location Works at Betterment
• White Paper: Tax-Coordinated Portfolio
• Disclosure Statement