Increase your portfolio value by an estimated 15% over 30 years.
Tax-Coordinated Portfolio optimizes and automates a strategy called asset location. It starts by placing your assets that will be taxed highly in your IRAs, which have big tax breaks. Then, it places your lower-taxed assets in your taxable accounts.
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.1
Frequently Asked Questions
How do I set up a Tax-Coordinated Portfolio?
After logging in, go to the top right side and click "Set Up" next to "Tax-Coordinated Dividends" in the header of your Summary tab. Next, follow the steps to set up your portfolio. You'll be prompted to select accounts to include and to select a single allocation for the entire portfolio.
What should I consider before setting this up?
Asset location is a long-term strategy. While it may lower taxes in the short-term, the greater benefits typically come from a longer investment period. It is not appropriate for investors who are in a Federal tax bracket of 15% or lower. There may be other considerations, depending on your personal circumstances. Please see the full disclosure for details.
Can I still withdraw money once I've set up my portfolio?
Yes. Asset location will not affect your ability to withdraw money. Note that long-term investors typically benefit the most from asset allocation and frequently withdrawing your money or making allocation changes may limit the benefits of this strategy.
Does Tax-Coordinated Portfolio affect my external accounts?
Having a Tax-Coordinated Portfolio at Betterment does not affect your external accounts. For these funds to benefit from our automated asset location, you would need to roll over or transfer them to Betterment.
Should I roll over my non-Betterment IRA or old 401(k) before setting up my Tax-Coordinated Portfolio?
Yes, generally it's more tax-efficient to roll over first and then funding your taxable account. This is because we can make larger rebalances in your IRAs (as compared to your taxable accounts) without causing you taxes. Learn more about rolling over a retirement account to Betterment.
Can I change the allocation of my Tax-Coordinated Portfolio?
You can change it at any time by going to the Advice tab. As always, changing your allocation can trigger taxable events, so you should avoid changing it, unless your investment objective has changed. If you do, our Tax Impact Preview feature will show you a real-time tax estimate before you confirm an allocation change.
If you decide you no longer want these accounts coordinated, email us and we'll be happy to help.
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1 The 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). They also assume 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.