A. Many people put lots of emphasis on diversification of investments, which is the right thing to do. However, they forget taxation diversification. It's important to remember that the overall performance of your investments is not only about what account you put money into, but also the tax treatments.
In short, there are three tax treatments of your investment contributions and distributions:
- After-tax contribution and taxable distribution
- After-tax contribution and tax-free or tax-preferred distribution
- Before-tax contribution and taxable distribution
In next several blog posts, we will look at each of the above blocks.