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Tax-Efficient Fund Placement Calculator

Optimize which funds go in taxable vs tax-advantaged accounts to minimize tax drag.

About this calculator

Asset location -- deciding which asset class sits in a taxable brokerage account versus a tax-advantaged account like a 401(k) or IRA -- is a real, widely discussed personal-finance strategy, and the conventional heuristic this calculator illustrates is placing bonds (fully taxed as ordinary income every year, with no deferral) in tax-advantaged accounts and stocks (which benefit from lower long-term capital gains rates) in taxable accounts. This calculator uses fixed, disclosed assumptions rather than entered inputs for the underlying returns and rates: a 10% annual stock return, a 4.5% annual bond return, a 15% long-term capital gains (LTCG) rate applied to the stock portion, and (for Total Tax Savings only) a 7% annual compounding rate on the tax savings themselves. Stocks in Taxable ($) is capped at 60% of Total Portfolio, modeling a fixed 60/40 stock/bond allocation regardless of how much of the portfolio sits in a taxable account -- Tax-advantaged (%) has no effect on this figure or on Bonds in Tax-Advantaged ($), which is simply whatever is left after the taxable allocation.

This model treats the entire assumed 10% stock return as if realized and taxed annually at the 15% LTCG rate, which is a deliberately conservative simplification: a real low-turnover index fund defers most of its growth as unrealized appreciation, so the true annual tax drag on stocks held in a taxable account is usually much smaller than what this calculator computes. Annual Tax Savings can be negative when the assumed stock-return-to-bond-return gap (10% vs 4.5%) is wide relative to the tax-rate gap between the 15% LTCG rate and your entered marginal rate -- that does not mean the conventional 'bonds in tax-advantaged' heuristic is wrong long-term (its real justification is maximizing tax-deferred compounding of the higher-growth asset over decades, not minimizing any single year's tax bill), only that this calculator's simplified annual-tax-cost comparison does not always point the same direction as that longer-run reasoning.

Inputs

%
%
%

Results

Stocks in taxable ($)

$40,000.00

≈ 4 years of state college

Bonds in tax-advantaged ($)$60,000.00
Annual tax savings ($)-$204.00
Total tax savings ($)-$8,363.00
Tax efficiency score (0-100)0
Inefficient annual tax ($)$396.00
Tax-Advantaged $ (as entered)$60,000.00
How to Use This Calculator
  1. Enter the percentage of your portfolio in taxable accounts versus tax-advantaged accounts (401k, IRA).
  2. Input your total portfolio value and marginal tax rate.
  3. Set the number of years you plan to invest.
  4. Review Annual Tax Savings and Total Tax Savings to see the modeled benefit of placing bonds in tax-advantaged accounts and stocks in taxable accounts, given the return and tax-rate assumptions you entered.
  5. Check Tax Efficiency Score (0–100) — scores above 70 indicate a well-optimized placement strategy at these inputs; a 0 can mean the standard convention offers little or no current-year tax benefit for your specific return assumptions, not that something is broken.

How the result changes with Taxable account (%)

Taxable account (%)Stocks in taxable ($)
20$20,000.00
30$30,000.00
60$60,000.00
100$60,000.00

What each input means

Taxable account (%)
Percentage of portfolio in taxable brokerage account.
Tax-advantaged (%)
Percentage in 401k, IRA, Roth, etc.
Total portfolio ($)
Total investment portfolio value.
Marginal tax rate (%)
Your marginal income tax bracket.
Years invested
Investment time horizon.

What each result means

Stocks in taxable ($)
Optimal stock allocation in taxable account.
Bonds in tax-advantaged ($)
Optimal bond allocation in tax-advantaged account.
Annual tax savings ($)
Yearly tax cost of bonds-in-taxable minus stocks-in-taxable, at your entered return and tax-rate assumptions. Can be negative -- a wide stock/bond return gap can outweigh the LTCG-vs-ordinary rate gap this model assumes.
Total tax savings ($)
Annual tax savings compounded over the investment period. Zero when Annual tax savings is zero; negative when it's negative.
Tax efficiency score (0-100)
Higher = more tax-efficient placement this year. Floors at 0 -- a 0 can mean either no benefit or a net cost from the stocks-in-taxable convention at your inputs.
Inefficient annual tax ($)
Tax cost if bonds placed in taxable.
Tax-Advantaged $ (as entered)
Total portfolio times Tax-advantaged (%) as entered above -- not the optimal placement amount shown in Bonds in tax-advantaged ($).

How this is calculated

Worked example, using the default values

  1. Identify Input Parameters
    5 parameters
    Taxable account (%) = 40, Tax-advantaged (%) = 60, Total portfolio ($) = 100000, Marginal tax rate (%) = 22, Years invested = 20 = 5 input(s) provided
  2. Calculate Stocks in taxable
    Stocks in taxable = min(taxableAmount, totalPortfolio * 0.60)
    40000 = $40,000
  3. Calculate Bonds in tax-advantaged
    Bonds in tax-advantaged = totalPortfolio - efficientTaxable
    60000 = $60,000
  4. Calculate Annual tax savings
    Annual tax savings
    -204 = $-204

Engine last updated . Checked against 1 independently-derived test — how we verify calculators. Built by Paul Gunder, a software engineer, not a licensed financial, medical, or legal professional.

Frequently Asked Questions

Why is Stocks in Taxable ($) capped at 60% of my portfolio?

This calculator assumes a fixed 60/40 stock/bond split for the 'efficient' placement scenario, regardless of what percentage you enter for Taxable account (%). If your taxable account holds less than 60% of the total portfolio, all of it is modeled as stocks; if it holds more than 60%, only the first 60% is modeled as stocks and the rest is treated the same as the tax-advantaged bond portion for this calculation.

Why can Annual Tax Savings be negative?

This model taxes the full assumed stock return annually at the long-term capital gains rate, then compares that dollar cost against taxing the bond return annually at your marginal rate. When the stock/bond return gap you entered is wide relative to the gap between those two tax rates, the stock-in-taxable scenario can show a higher current-year tax bill than the bond-in-taxable scenario -- a negative number here reflects that specific comparison, not a broken calculation.

If Annual Tax Savings can be negative, is the standard asset-location advice wrong?

Not necessarily. The usual justification for placing bonds in tax-advantaged accounts is about tax-deferred or tax-free compounding of the higher-growth asset over many years, not about minimizing any single year's tax bill -- and this calculator only measures the latter, using a simplified assumption that the entire stock return is realized and taxed every year. A real stock index fund defers most of its gains, so its true annual tax drag is usually much smaller than what this model computes.

Why doesn't Years invested affect Annual Tax Savings?

Annual Tax Savings is a single year's tax-cost comparison, calculated independently of how many years you plan to stay invested. Years invested only enters Total Tax Savings, which compounds that annual figure forward at an assumed 7% growth rate to estimate a cumulative dollar benefit (or cost, if Annual Tax Savings is negative) over the full investment horizon.

Does Tax-advantaged (%) affect any of the tax savings figures?

No -- Tax-advantaged (%) only determines Tax-Advantaged $ (as entered), a simple restatement of your entered percentage. All of the actual tax-savings math (Annual Tax Savings, Total Tax Savings, Tax efficiency score, Inefficient annual tax) is driven by Taxable account (%), Total portfolio, and Marginal tax rate instead, since the model only needs to know what sits in the taxable account to compare the two placement scenarios.

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