"You must pay taxes. But there's no law that says you gotta leave a tip."
You work hard for your money, and you take the time to make proper investments for your future, so you deserve to fully enjoy the profits of your decisions.
Minus Uncle Sam's cut, of course.
Look, we can kick and scream about it all we want, but we have to pay taxes on our investments at one point or another. The secret is not overpaying, so that you keep more of what's rightfully yours.
The high-net-worth clients I used to work with knew this, and they made reducing their tax liabilities Priority No. 1. There's a reason they're rich, after all.
But you don't need to keep an accountant on retainer to manage your investment taxes; you just need to practice smart "asset location."
No, that's not a typo
What I mean by smart asset location is knowing which investments to put in retirement accounts like IRAs and 401(k)s, and which to leave in regular (taxable) accounts.
For example, dividends from real estate investment trusts (REITs) like Vornado Realty Trust
Also best kept in tax-deferred accounts (at least until retirement) are high-yielding stocks like AT&T
On the other hand, low-yielding stocks or stocks that don't pay dividends at all, like Energy Conversion Devices
But wait, there's more ...
So there you have it: The right stocks for your IRA are REITs and dividend payers that you plan to hold for long periods of time (so long as you'll reinvest those dividends).
Of course, your portfolio probably contains investments other than individual stocks, like mutual funds, bonds, and TIPS. You'll want to determine the proper asset location for those as well, which will depend on current tax laws (which seem to change with the winds) and how far away from retirement you are.
It's something worth keeping tabs on; having all your investments in their proper location could save you thousands of dollars, and help you make the most of your retirement years.
If you're unsure of how to optimize your portfolio, Motley Fool Rule Your Retirement advisor Robert Brokamp recently detailed the best location for a wide range of investments. If you'd like to read that report, or have other questions about retirement planning, consider a free 30-day trial of the Rule Your Retirement service. To take advantage of our offer, just click here.
This article was first published June 14, 2008. It has been updated.
Todd Wenning wonders why you never see baby squirrels. He does not own shares of any company mentioned. BB & T is a Motley Fool Income Investor recommendation. The Fool's disclosure policy has been accident-free since 1994.