Asset location · hypothetical illustration

Same $1.5 million, same investments — different after-tax results

Asset allocation decides what you own. Asset location decides which account holds it. Below, the same mix of cash, low-dividend stock and high-dividend stock is placed four different ways across a taxable account, a Traditional IRA and a Roth IRA. Nothing about the investments changes — only where the taxes land.

Assumptions

Starting balances & mix

Taxable account

Traditional IRA

Roth IRA

Cash share (after tax)

Rebalance each year to

IRAs are rebalanced tax-free; taxable income is reinvested toward the target (no taxable sales). Every case holds the same after-tax mix.

Stock total return

Both stock portfolios; includes the dividend yields set alongside

Low-dividend stock yield

Part of the total return, paid as dividends each year

High-dividend stock yield

Part of the total return, paid as dividends each year

Cash interest rate

Interest taxed as ordinary income

Marginal income tax rate

Cash interest in taxable; Traditional IRA withdrawals

Qualified dividend tax rate

Applied each year to dividends in the taxable account

Long-term capital gains rate

Applied at the end to unrealized gains in the taxable account

Share of taxable gains taxed at end

Below 100% models step-up in basis at death or gifting appreciated shares

Share of Traditional IRA taxed at end

Below 100% models charitable gifts (QCDs, bequests) from the IRA

Investment fees

Flat annual fee ($)

Paid entirely from the taxable account

Asset-based fee (% of AUM)

Charged to every account on the average of its starting and ending balance each year

Years invested

20 years

Taxable Traditional IRA Roth IRA Tax owed (22% of Trad IRA; 15% of taxable gains)

Asset mix (strips = within each account; right-hand box = all accounts, after tax): Cash Low-dividend stock High-dividend stock

Account-by-account after-tax values

Scenario	Taxable	Traditional IRA	Roth IRA	Total after tax	vs. Cash in Taxable

How the gap grows over time

Extra after-tax dollars versus Cash in Taxable, by year, with the percentage difference at each decade and at the selected year. Small annual tax differences compound.

How each account is taxed

Traditional IRA: the slow grower

You effectively own only 78% of a Traditional IRA — the rest is a future tax bill that grows with it. Parking the lowest-growth asset (cash) here keeps that bill small, and shelters interest that would otherwise be taxed at 22% every year.

Roth IRA: the best growth, income included

Every dollar of Roth growth is yours tax-free, so it should hold high-return assets. High-dividend stock fits well here: its large dividends would be taxed every year in a taxable account, but cost nothing in the Roth.

Taxable: growth that waits

Low-dividend stock pays little taxable income each year. Most of its return is price growth, which isn’t taxed until sold — and then at the 15% long-term capital gains rate. More money stays invested and compounding.