Taxes

Tax Optimization

The practice of arranging your investments across different account types (Taxable, IRA, Roth) to minmize your overall tax burden.

Reviewed by DivAgent Research Team
Updated Jan 2026

Tax Optimization — At a Glance

Definition

Keep what you earn. Put ordinary income (REITs, BDCs) in IRAs; keep qualified dividends (SCHD) in taxable accounts.

Risk Level
Low
Commonly Seen In
Asset location strategy
Warning Sign
Holding high-yield covered call ETFs (ordinary income) in a taxable account can lose 30%+ of your return to taxes.
Key Metric
After-tax Total Return
Pro Tip

Focus on "tax-efficient asset location" - matching the tax characteristics of the asset to the tax treatment of the account.

Tax optimization (or asset location) is the art of placing specific investments in the accounts where they will be taxed least.

General Asset Location Rules

  • Tax-Efficient (Taxable Account): Municipal bonds, low-turnover index funds, qualified dividend stocks (SCHD, VIG).
  • Tax-Inefficient (Tax-Advantaged / IRA): Corporate bonds, REITs, BDCs, and derivative income ETFs (JEPI, TSLY) that generate ordinary income.
  • High-Growth (Roth IRA): Assets you expect to appreciate significantly (Tech, growth dividends) to capture all gains tax-free.

DivAgent Educational Standards

This definition is part of the DivAgent Income Academy curriculum. Our glossary is designed to bridge the gap between institutional jargon and retail investor understanding. Each term is reviewed by our Research Team for accuracy, specifically in the context of:

  • Tax implications (Ordinary vs. Qualified)
  • Impact on Total Return calculations
  • Relevance to Option-Income strategies
  • Risk assessment in a retirement portfolio

*While we strive for precision, financial terminology can evolve. Always verify definitions with official regulatory sources (SEC, IRS) when making tax or legal decisions.

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