At Betterment, we’re continually improving our investment advice, always with the goal of maximizing our customers’ take-home returns. Key to that pursuit is minimizing the amount lost to taxes.

Now, we’ve taken a huge step forward with a powerful new service that can increase your after-tax returns, so you can have more money for retirement.

Betterment’s Tax-Coordinated Portfolio (TCP) service is our very own, fully automated version of an investment strategy known as asset location. Automated asset location is the latest advancement in tax-smart investing.

## Introducing Betterment’s Tax-Coordinated Portfolio™

Asset location is widely regarded as the closest thing there is to a “free lunch” in the wealth management industry. If you are saving in more than one type of account, it is a way to increase your after-tax returns without taking on additional risk.

Millions of Americans wind up saving for retirement in some combination of three account types: 1. Taxable, 2. Tax-deferred (Traditional 401(k) or IRA), and 3. Tax-exempt (Roth 401(k) or Roth IRA). Each type of account has different tax treatment, and these rules make certain investments a better fit for one account type over another.

Choosing wisely can significantly improve the after-tax value of one’s savings, when more than one account is in the mix. However, intelligently applying this strategy to a globally diversified portfolio is complex.

A team of Betterment quantitative analysts, tax experts, software engineers, designers, and product managers have been working for over a year building this powerful service. Today, we are proud to introduce Tax-Coordinated Portfolio (TCP), the first automated asset location service, now available to all investors.

Our research estimates that the benefit of TCP could range from 0.10% to 0.82% in additional after-tax return. Its value will depend on a number of circumstances specific to the investor, discussed in more detail below. In one generalized scenario, saving in all three types of accounts showed an after-tax benefit of 0.48%, annualized over 30 years.

How would that translate into more concrete terms? A simple example:

Assuming a compounding annual return of 7%, a $100,000 portfolio would grow by$661,226 after 30 years.1

#### Equal Starting Balance in Three Accounts: Taxable, Traditional IRA, and Roth IRA

Asset Allocation Additional Tax Alpha with TCP (Annualized)
50% Stocks 0.82%
70% Stocks 0.48%
90% Stocks 0.27%

Source: TCP White Paper.

## Get Started with a Tax-Coordinated Portfolio

Ready to take advantage of the benefits of a Tax-Coordinated Portfolio? Here’s how to set it up in your Betterment account.

After logging in, go to the top right side of your account in the header of your Summary tab and click Set Up next to Tax-Coordinated Dividends. Then, follow the steps to set up your new portfolio.

#### Sample Account: Set Up Your New Tax-Coordinated Portfolio

Once you’ve set up TCP, Betterment will manage your assets as a single portfolio across all accounts, while also looking to increase the after-tax return of the entire portfolio, using every dividend and deposit to optimize the location of the assets.

The Tax-Coordinated Dividends module will show you how many dividends were paid in a tax-advantaged account due to TCP, which otherwise would have been paid in your taxable account—and taxed annually.

This service is available to all Betterment customers at no additional cost.

Learn more about asset location and Betterment’s Tax-Coordinated Portfolio by reading our white paper.

1The estimated additional annualized return of 0.48% assumes that the initial balance is equally distributed across three types of accounts: a taxable account, a tax-deferred account (such as a traditional IRA) and a tax-exempt account (such as a Roth IRA). It also assumes a 70% allocation to stocks across the entire 30-year period, and a California resident in a 28% federal tax bracket both during the entire period, and at liquidation. The incremental return was calculated using the Monte Carlo projection method across more than 1,000 simulated market scenarios. It compared the total after-tax value of all three accounts when managed by TCP to the benchmark, which was the after-tax value of all the accounts under the same market scenarios, but uncoordinated (i.e. managed by Betterment separately, as standalone Betterment portfolios). As such, these projections make no claim about the value of Betterment’s service as compared to any particular non-Betterment investing strategy. Instead, they estimate specifically the value of the TCP service, as applied to Betterment’s baseline passive investing strategy. There are additional assumptions around these estimates, which are necessarily numerous and complex, due to the nature of this projection method. TCP may not be suitable for taxpayers subject to a Federal tax bracket of 15% or lower. You should not use TCP to coordinate accounts with materially different time horizons. TCP is not optimal for accounts which you rely on for liquidity in case of unforeseen circumstances. For much more on this research, including additional considerations on the suitability of TCP to your circumstances, please see our white paper and our full disclosures.

2All of this is very simplified, actually. Reality is far more complex, and TCP’s algorithms manage that complexity. If you want the whole story, you’ll have to read our white paper.

All return examples and return figures mentioned above are for illustrative purposes only. For much more on our TCP research, including additional considerations on the suitability of TCP to your circumstances, please see our white paper. For more information on our estimates and Tax-Coordinated Portfolio generally, see full disclosure here.

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