I Asked an Advisor Which Stocks Belong in a Taxable Account — Here’s the Logic
Written by
G. Brian Davis
Edited by
Jenna Klaverweiden
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Not sure which assets to hold in which accounts for tax purposes?
Financial advisors recommend holding the following types of stocks and assets in your taxable brokerage account.
Also see four tax questions to ask before you rebalance your portfolio.
Stocks Without Dividends
The IRS taxes most dividends at your regular income tax rate — which of course you don’t want. “The stocks best suited for your taxable account are low- or no dividend paying stocks,” recommended advisor and finance professor Robert Johnson, Ph.D., of Creighton University.
You ideally want to hold any high-yield stocks in a retirement account, where you can have the dividends automatically reinvested while you’re working and then start living off them in retirement.
Low/No Income Funds
The same logic applies to funds. For your taxable brokerage account, consider funds made up of long-term growth stocks, which largely reinvest profits into growing the business.
Because they pay most or all of their returns in the form of price growth, you control when or if you cash them out and pay taxes on those returns. If you hold them until you die, the cost basis resets and your heirs pay no taxes on them, assuming your estate is less than the exemption (currently $15 million).
Stocks Paying Qualified Dividends
If you want to buy dividend-paying stocks and don’t have room in a Roth account, buy stocks or funds that pay qualified dividends.
The IRS taxes qualified dividends at the long-term capital gains rate. For 2026, that’s 0% for single taxpayers earning up to $49,450 or $98,900 for married couples filing jointly, and 15% for most other taxpayers.
Mark Luscombe, principal analyst for Wolters Kluwer, pointed out that these dividends would actually cost you more in a traditional retirement account. “Those qualifying dividends in a traditional IRA or 401(k) would eventually be taxed at your ordinary income tax rates when withdrawn in retirement,” Luscombe said.
What Not To Hold in Taxable Accounts
Watch out for real estate investment trusts (REITs) in your taxable account, as they pay high unqualified distributions. You’ll also pay full income taxes on the dividends from high-yield bond funds.
Actively managed, high-turnover funds can generate lots of taxable gains in your regular brokerage account. Consider putting these in your Roth IRA instead.
The same logic applies to short-term trades: You’ll pay full income taxes on the gains.
Finally, beware of target date funds. As you get closer to retirement, they shift allocations, which leaves you with taxable gains on the sold assets.
Editor’s note: This article is for informational purposes only and does not constitute financial advice. Investing involves risk, including the possible loss of principal. Always consider your individual circumstances and consult with a qualified financial advisor before making investment decisions.
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