TAXABLE vs TAX-DEFERRED

September 16, 2008
Michael Sheehan

Physician's Money Digest, April15 2003, Volume 10, Issue 7

Many physician-investors splittheir portfolios between taxable andtax-deferred accounts. Some investmentsbelong in a tax-deferred account,while others don't. Municipalbonds should be held in a taxableaccount, because the interest is almostalways tax-exempt. Hold themin a tax-deferred account and you'llpay taxes on that interest when yousell the bonds. Taxable bonds are theopposite; hold them in a tax-deferredaccount to put off paying taxes on theinterest they earn until you sell.Individual stocks that pay no dividendsshould also be in a taxableaccount, since they throw off notaxable income and you'll pay alower capital gains tax on any profitwhen you sell. If you trade stocksfrequently, you should do it withstocks in your tax-deferred plan,where short-term capital gains aresheltered from taxes.