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To clarify Wayne's comments further, if one had a choice b/w a taxable account and a non-deductible IRA or variable annuity to hold equities, it makes more sense to hold the equities in the taxable account, especially if one is going to use a tax-efficient index fund, Tax managed fund, or ETF. I'm sure that Wayne wasn't specifically mentioning this. I think he was suggesting keeping the tax-efficient equities in the taxable, and the bonds/REITs (those assets that generate mostly dividend income or are not eligible for the new lower equity dividend tax rates) in the tax-deferred. The new lower capital gains and dividend tax rates make holding tax-efficient equities in the taxable account and bonds/REITs in the tax-deferred account more attractive than the other way around, as long as one is maxing out the tax deferred options and Roths first.
I would put the funds that are the most tax-efficient in the taxable account. I believe there are more tax-efficient funds than these metioned above. For Int'l, I'd favor either the Tax Managed Int'l, the individual Region Index funds (Europe and Pacific), or perhaps the MSCI EAFE ETF or Emerging Market ETF. They will allow foreign tax credits, but Total Int'l or Developed Markets funds (which are funds of funds) won't.
For the small caps, I'd rather not use either of the small cap value or the small cap growth. I'd also probably not use the small cap growth fund as small cap growth (as an asset class) has historically not provided the higher returns to compensate for the higher risks. Plus, small value should be a much better diversifier of the large caps in the 401(k), and the int'l large caps. I'd prefer to use either the Tax Managed Small Cap fund, or an ETF like iShares S&P 600 value (IJS ??) or Russell 2000 value . Since we can't know which asset class (int'l, large, or small) will provide the highest returns in the future, I'd go with the things we can specifically control (taxable distributions) with tax-managed funds or ETF's.
Of course, if you'll be making periodic contributions, I'd probably go with the Tax managed funds b/c of the transaction costs for the ETF's (e.g. broker fees).
- Alec
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