A decision on whether to hold certain investments inside your tax-deferred retirement plan or outside also depends on:
* Your age. Young investors should hold the assets with the highest expected return inside of a plan. Hopefully, the tax-deferred growth, over a long time period, will make up for the loss of tax benefits. Any gains will wind up being taxed as ordinary income, not long-term capital gains, when withdrawn from the plan.
* Your retirement schedule. At some point, “crossover” occurs, when it makes more sense to hold fixed-income assets inside of a plan because the expected holding period is shorter. That point might be when you are in your 60s but that can vary by the circumstances, such as when you will begin to take distributions from a tax-deferred plan.
* Your need for liquidity. If you will need access to funds, it makes sense to have some fixed-income assets outside of a retirement plan. Some retirees need income so they’ll keep their fixed-income holdings outside, if the taxable portfolio is being tapped.
On the other hand, liquidity might be needed inside of a tax-deferred account. When you are taking required distributions, you should make sure you have ample liquidity inside your IRA. You don’t want to have to sell stocks at the wrong time–those stocks might thrive with a longer holding period.