How High Net Worth Investors Should Think About Asset Location

Asset location is one of those quietly powerful levers that high-net-worth investors use to boost after-tax returns without taking more risk. It’s about where you hold assets (which accounts), not what you own (that’s asset allocation).

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The Core Idea

Different accounts are taxed differently:

• Taxable brokerage → ongoing taxes on dividends, interest, and realized gains
• Tax-deferred (traditional IRA/401(k)) → taxed later, at ordinary income rates
• Tax-free (Roth accounts) → no taxes on growth or withdrawals (if rules met)

Asset location matches investments to the accounts where they’re taxed most efficiently.

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How High Net Worth (HNW) Investors Benefit

1. Lower (often dramatically) lifetime taxes

By placing highly taxed income investments in tax-advantaged accounts and letting tax-efficient investments sit in taxable accounts, investors can:

• Reduce annual tax drag
• Defer taxes (potentially for decades)
• Potentially lower total lifetime taxes by a significant amount

This can compound over time in a big way.

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2. Put “tax-inefficient” assets in tax-advantaged accounts

Assets that generate ordinary income or frequent distributions are prime candidates for IRAs/401(k)s:

• Bonds and bond funds
• REITs
• Actively managed funds (though watch out for Unrelated Business Taxable Income in some cases)
• Private credit or high-turnover strategies

HNW investors often have enough tax-advantaged space to fully accommodate these asset classes in their portfolios.

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3. Use taxable accounts for tax-efficient growth

Taxable accounts shine when holding:

• Broad equity index funds (low turnover)
• ETFs (in-kind redemptions can help avoid capital gains)
• Stocks meant to be held long-term

Benefits include:

• Long-term capital gains rates (with sufficient holding period)
• Step-up in basis at death (significant for estate planning)
• Tax-loss harvesting opportunities

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4. Maximize the value of Roth space

Roth accounts are extremely valuable to wealthy investors because:

• Not subject to Required Minimum Distributions (RMDs)
• No taxes on growth
• Great for passing assets to heirs

Holdings that best align with Roth accounts include:

• Highest-expected-return assets
• Illiquid or alternative strategies (though watch out for Unrelated Business Taxable Income in some cases)
• Small-cap or factor-tilted equities

Under current tax law, every extra dollar of growth here is permanently tax-free.

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5. Coordinate with estate planning

Asset location isn’t just about your taxes:

• Taxable assets may get a step-up in basis for heir
• Tax-deferred accounts can create large income tax bills for beneficiaries
• Roth assets are often the cleanest inheritance

HNW families align asset location with trusts, charitable giving, and multigenerational goals.

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6. Create flexibility for tax-year planning

With assets spread intelligently across account types, investors can:

• Choose which account to draw from in high- or low-income years
• Smooth taxable income
• Manage Medicare surcharges, Net Investment Income Tax (NIIT), or state tax exposure

That flexibility is real financial power.

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Why This Matters More as Wealth Grows

For high earners and large portfolios:

• Marginal tax rates are higher
• Investment income is larger
• Small percentage improvements can translate to big dollar impacts

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How GatePass Can Help

We can walk through a simple example of how two identical portfolios could end up with very different after-tax outcomes just because of asset location. We can also tailor an analysis to your specific financial situation (business owner, concentrated stock, multi-state taxes, complex estate, etc.) Making the right asset location decisions now can add to after tax returns without changing risk or expected pre-tax returns. Schedule a meeting to learn more.

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GatePass Capital, LLC is a registered investment adviser; registration does not imply a certain level of skill or training. We also provide paid tax return preparation services through GatePass Tax Services, LLC and will not use or disclose your tax return information for non‑tax purposes without your written consent, as required by law (IRC §7216/§6713).

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