Tax-advantaged account
An account in which investment returns escape tax or have it deferred, such as a tax-deferred or tax-exempt retirement account. Holding the least tax-efficient assets there saves the most.
Where you will meet it
Tax-advantaged account appears in 3 learning outcomes on the CFA syllabus. A few of them:
- Assess how tax principles and tax costs affect goal-based and whole-of-family financial plans for individuals
“Assessing a plan means checking the tax drag on each sub-portfolio, the timing of realisations, the use of tax-advantaged accounts and residence-driven differences.”
- Evaluate the effect of different taxes on individuals and of inflation on their investment decisions
“Taxes create a drag that compounds over time, so the location of assets in taxable or tax-advantaged accounts, the timing of realised gains and the choice of tax-efficient vehicles all matter.”
- Explain how tax-efficient different asset classes tend to be and propose tax-management techniques for allocating assets
“Techniques include asset location (holding tax-inefficient assets in tax-advantaged accounts), deferring realisations, harvesting losses to offset gains and selling the highest-cost lots first.”
See also
Practise it
Practise tax-advantaged account until it is automatic: questions that explain every wrong option.
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