In your investment portfolio, you may want to include some taxable bonds: Treasuries, corporates, mortgage-backed securities. If that’s the case, those taxable bonds or funds holding such bonds should be held inside a tax-favored retirement account such as a traditional IRA or a Roth IRA.
* Inside your IRA, the interest income won’t be taxed. You won’t have to pay that tax until you withdraw money from your traditional IRA. Moreover, you can avoid that tax altogether by holding the bonds in your Roth IRA for five years or more, until you’re older than 59-1/2.
* Outside of your IRA, you can hold your stocks and stock funds. Then you can take capital losses, in bear markets. Those losses will permit you to take the same amount of gains in bull markets, without owing any capital gains tax.
