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Planning with purpose
Using asset location to pursue your goals
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Building a tax-smart plan
No matter what you’re saving for, you may have accumulated multiple accounts to help move you closer to your goals. Have you thought about how and when the assets in these accounts will be taxed? An asset location review can help ensure you have certain assets in the right accounts to help minimize taxes—today and tomorrow.1
What is asset location?
While asset allocation is about having the right mix of investments, asset location organizes assets by account types based on how you plan to use them—and when they’ll be taxed.
Asset location can help ensure:
Asset location can help ensure:
You have the right kind of asset in the right account
You're using the smart strategies to help reduce the impact of taxes
Each asset has a purpose in your overall financial plan
1 Before making any changes to your financial plan, it is important to keep in mind that the tax status and tax benefits of these products can change depending on how you use them and how and when the funds are accessed. There are generally strict rules for tax-deferred and tax-free accounts and they are generally not as liquid as taxable accounts.
Before you make any changes, consider all tax and financial implications so you can determine if these products are suitable for you.
Before you make any changes, consider all tax and financial implications so you can determine if these products are suitable for you.
Your TIAA advisor can help you develop an asset location strategy in three steps:
Classify
Step one: Classify your assets
The first step in an asset location review is to organize your assets by account types and when they’ll be taxed. Decide if the asset belongs in the “now,” “later” or “never” bucket.
For instance, let’s say you have an asset in a certain account. If that asset is taxed before it’s used, investment gains may be impacted. Instead, it may be more efficient to move the asset to a different account to better match when it’ll be used and taxed.
Designate
STEP TWO: Designate the purpose of your accounts
Now, it’s time to identify how you plan to use each account. You probably use different assets for your:
Needs—the essential costs ofliving
Wants—things that are important to you, but can be cut back
Wishes—your own vision of an ideal retirement or legacy
Locate
Step three: Locate your assets
Your TIAA advisor can conduct an asset location review of your accounts—those you hold with TIAA and any you may hold elsewhere. When the review is complete, you should have a clearer idea of whether your assets are in the right location—and if your strategy is as tax smart as it could be. Consult with your tax advisor prior to making any changes.
| Time horizon | Now | Later | Never |
| Purpose | Assets for near term and/or assets for non-negotiable daily living expenses | Assets for future use such as retirement income, healthcare and/or elastic expenses | Assets to fund longer term wishes such as leaving a legacy |
| Saving for shorter term financial needs (e.g., home, renovation) | Cash/Money Markets The flexibility of these accounts allows near-term goals to be met with little tax implication due to the minimal interest distributions. | CDs A savings vehicle with a fixed period for the length of time you want to save with a fixed interest rate. | |
| Emergency fund | Long-term Care Tax-free income benefit should you need long-term care services. | ||
| College savings | 529 College Savings Plans Specialized accounts for college savings that offer tax benefits when used for qualified education expenses. | ||
| Wealth accumulation | Managed accounts From self-guided to advisor-led, managed accounts provide enhanced investment capabilities, resources and committed people who will professionally manage your portfolio based on what matters most to you. | ||
| Retirement savings | Qualified retirement plans and IRAs Potential growth of any investment earnings are tax-deferred until you make a withdrawal or distribution. | Roth IRA Contributions are after tax, and withdrawals can be tax-free in retirement. Ability to leave income tax-free assets to your family and heirs. | |
| Supplement retirement savings | Personal (after-tax) annuities A great way to supplement pension plans and other tax-qualified options, with additional retirement savings, and guaranteed retirement income options. | ||
| Income protection/ Legacy planning | Life Insurance Generally income tax-free death benefit proceeds can help replace income for beneficiaries and create a legacy for heirs.2 | ||
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2 See IRC Section 101(a).
3All guarantees are based on the claims paying ability of the issuing company.This material is for informational or educational purposes only and does not constitute a recommendation or investment advice in connection with a distribution, transfer or rollover, a purchase or sale of securities or other investment property, or the management of securities or other investments, including the development of an investment strategy or retention of an investment manager or advisor.
3All guarantees are based on the claims paying ability of the issuing company.This material is for informational or educational purposes only and does not constitute a recommendation or investment advice in connection with a distribution, transfer or rollover, a purchase or sale of securities or other investment property, or the management of securities or other investments, including the development of an investment strategy or retention of an investment manager or advisor.
This material does not take into account any specific objectives or circumstances of any particular investor, or suggest any specific course of action. Investment decisions should be made in consultation with an investor’s personal advisor based on the investor’s own objectives and circumstances.
Please log on to tiaa.org/prospectuses for underlying product and fund prospectuses that contain this and other information. Read the prospectuses carefully before investing.
This article is for general informational purposes only. It is not intended to be used, and cannot be used, as a substitute for specific individualized legal or tax advice. Tax and other laws are subject to change, either prospectively or retroactively. Individuals should consult with a qualified independent tax advisor, CPA and/or attorney for specific advice based on the individual’s personal circumstances. Examples included in this article, if any, are hypothetical and for illustrative purposes only.
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