Last week, I wrote about four rules for asset allocation. That article listed the best places for your money (stocks, bonds, CDs, savings, etc.) depending on your time horizon. Once you've found your right allocation, however, you'll run into another issue with your various types of accounts: Which (nest) eggs should go into which baskets?

Two rules
If you're like most people (and most people are), you have money stashed away in several accounts. A 401(k) here, a Roth IRA there. Your discount brokerage. Your wife's 403(b), perhaps, and a nearly forgotten traditional IRA. Two rules will help you decide what to do with them -- and will save you some significant cash.

Rule No. 1: Know your tax implications.
It all starts with taxes, baby. Generally speaking, you'll want your most tax-inefficient investments in your tax-sheltered retirement accounts. On the other hand, tax-efficient investments are a good fit for your taxable accounts. In the latest issue of Motley Fool Rule Your Retirement, advisor Robert Brokamp generated the following list, from least to most tax-efficient:

  • High-yield (a.k.a. junk) bonds (from General Motors (NYSE:GM) or Xerox (NYSE:XRX), for example)
  • Real estate investment trusts (REITs) like Vornado Realty Trust (NYSE:VNO) and Developers Diversified Realty (NYSE:DDR), whose dividends are not subject to recent tax cuts
  • Stocks that you buy and sell within a year (not many, hopefully)
  • Corporate bonds, certificates of deposit, and money markets
  • High-turnover stock mutual funds
  • Treasury Inflation-Protected Securities (TIPS)
  • Treasury bonds
  • Low-turnover, index, and "tax-efficient" stock mutual funds
  • Stocks that pay qualified dividends and that you plan to hold for many years (Abbott Labs (NYSE:ABT), Pfizer (NYSE:PFE), Hershey (NYSE:HSY))
  • Stocks that don't pay dividends and that you hold for many years
  • Municipal bonds

Generally speaking, Robert says, the top of the list is better suited for retirement accounts, and the bottom is better for non-tax-advantaged accounts.

Rule No. 2: Your retirement timeline can affect Rule No. 1.
Younger investors probably won't have significant nonretirement assets, and they'll likely struggle just to max out their 401(k)s. They needn't get too caught up in a perfect allocation. But the nearer you are to retirement, the more important your asset allocation. One reason is that withdrawals will eventually replace contributions.

As Robert explains in his "Six Rules for Smart Withdrawals" special report (available with a free trial to the newsletter), there is an order you should follow for your withdrawals. That generally means selling investments in taxable accounts first, then taking distributions from tax-deferred investments, and leaving tax-free investments (usually those in a Roth IRA) for last.

Learning how to park your assets in the right spot can a bit confusing at first, but the money saved by proper allocation is well worth it. Robert goes into more detail in his "Real-Life Asset Allocation" feature in this month's Rule Your Retirement. It's a good read.

Rex Moore has discovered that sea monkeys have feelings, too. He owns no stocks mentioned in this article. Pfizer is a Motley Fool Inside Value recommendation. The Fool has a disclosure policy.