The Asset Location Mistake That Could Cost You $100K+ | 401(k) Strategy for Executives

Answer – TL;DR

Most high-earning professionals nail what they invest in, but quietly lose six figures on where those assets live. This episode walks through a practical asset location playbook—how to place bonds, equities, and Roth dollars across 401(k)s, IRAs, and brokerage accounts so you keep more of your returns. You’ll see the five most common mistakes executives make, plus a simple six-step system and a real case study showing a projected six-figure benefit with zero added risk.

Key Takeaways

Asset location ≠ asset allocation: Allocation is what you own; location is which account owns it (tax-deferred, taxable, or future tax-free). Get both right to grow and keep more.
Tax-inefficient assets belong in tax-advantaged accounts: Bond funds, REITs, and high-turnover strategies can create ordinary income and short-term gains; those are usually better housed in IRAs/401(k)s, not brokerage accounts.
Mega backdoor Roth can be a quiet six-figure lever: Many large-company 401(k) plans allow after-tax contributions plus in-plan Roth conversions so high earners can move more into future tax-free buckets each year.
Order of withdrawals matters in retirement: A random withdrawal pattern can accelerate taxes; a thoughtful sequence across taxable, pre-tax, and Roth accounts may add years of tax-efficient runway.
Systems beat one-off moves: A one-page asset location IPS, automated rebalancing in low-tax accounts, and tax-aware cash flows turn asset location from a one-time project into an ongoing advantage.

Key Moments

00:00 – The hidden $100K mistake: Why a 2% annual tax drag can quietly cost over $170,000 in 10 years on a $500K portfolio.
01:15 – Asset allocation vs. asset location: The three tax buckets—tax-deferred, taxable, and future tax-free—and why placement matters.
01:39 – Mistake #1: Tax-inefficient investments (bonds, REITs, high-turnover funds) sitting in taxable accounts.
02:31 – Mistake #2: Ignoring the mega backdoor Roth and how to ask HR if your plan supports it.
02:57 – Mistake #3: Employer match and profit sharing not coordinated with your own deferrals.
03:19 – Mistake #4: No written asset location policy, leading to drift and tax-inefficient rebalancing.
03:44 – Mistake #5: Paying unnecessary taxes in retirement due to random withdrawal sequencing.
04:42 – Six-step system: Inventory buckets, map holdings, turn on mega backdoor Roth, automate rebalancing, add tax-aware cash flows, and write a one-page IPS.
05:55 – Case study: VP of sales with a $1.2M portfolio repositions assets and turns on mega backdoor Roth with a projected six-figure benefit.
06:40 – Make it a family system: The 20-minute money huddle and how Tailored Wealth builds this architecture for clients.

Episode Summary

In this executive-focused breakdown, Dan explains why getting asset location wrong can be a six-figure mistake, even if your investment choices and savings rate are solid. He starts by distinguishing asset allocation (what you own) from asset location (which accounts own which assets) and introduces the three key tax buckets: tax-deferred, taxable, and future tax-free. The goal: same portfolio, same risk, but materially less tax drag over time.

Dan then walks through the five biggest asset location mistakes he sees with busy executives. These include holding tax-inefficient bond funds and REITs in taxable accounts, ignoring the mega backdoor Roth option inside many Fortune 500 and growth-company plans, and allowing employer match and profit sharing to land in uncoordinated ways. He also highlights the risk of not having a written asset location policy—leading to rebalancing that inadvertently pushes the wrong assets into the wrong accounts—and of taking random withdrawals in retirement without a tax-aware sequence.

To move from theory to practice, Dan outlines a simple six-step system: inventory every account by tax bucket, map each holding to its ideal “tax home,” turn on the mega backdoor Roth if available, prioritize rebalancing in tax-advantaged accounts, implement tax-aware cash flows, and codify everything in a one-page asset location IPS. A real-world case study of a VP of sales with a $1.2 million portfolio shows how these moves can generate a projected six-figure benefit over 10 years with no additional risk—simply by changing where assets live, not what they are.

Transcript

Dan Pascone (00:00): You’re contributing to your 401(k). You’re investing diligently. And yet, you still may be quietly leaving six figures on the table every few years. Here’s why. A simple 2% tax drag from holding the wrong assets in the wrong accounts can cost you over $170,000 over 10 years on a 500K account. Same portfolio, same market, just different placement.

Dan Pascone (00:28): I’m Dan Pascone, founder of Tailored Wealth. We help business owners and executives to optimize investments, reduce taxes, and align money with life goals. And today, I’ll help you find and fix the $100,000 asset location mistake that most busy executives make. I say it all the time: control is the ultimate asset class.

Dan Pascone (00:48): Not another hot fund or clever trade, but where your assets live, how dollars flow, and how gains get taxed. Here’s the simple playbook that we use with our clients step by step, and I’ll point out the spots along the way where I see the biggest leaks. And if you want ongoing bite-size playbooks like this, visit our free content hub for high-earning executives at makingsenseofyourmoney.com.

Dan Pascone (01:15): Okay, first here’s a quick sanity check. Asset location is not the same thing as asset allocation. Allocation is what you own. Location is which type of account owns it. We always talk about three buckets: tax-deferred, taxable, and future tax-free. If you get allocation right, you’ll grow. If you get location right, you’ll be able to keep more of that growth.

Dan Pascone (01:39): The first mistake that we see is tax-inefficient investments sitting in taxable accounts—bond funds throwing off ordinary income, active funds producing short-term gains, and REIT distributions getting taxed at the top of your bracket. So, here’s the fix. Move bonds, REITs, and high-turnover funds into tax-advantaged accounts when you can, and keep broad, low-turnover index funds in your taxable accounts.

Dan Pascone (02:07): Result: you lower your annual tax drag without changing your risk.

Dan Pascone (02:07–02:31): Mistake number two is ignoring the mega backdoor Roth. Many Fortune 500 and growth-company plans allow after-tax 401(k) contributions plus in-plan Roth conversions. Translation: you can put more into a Roth each year, regardless of your income, and let it grow tax-free.

Dan Pascone (02:31): I tell every prospective client that I meet with to ask their HR team if their plan supports after-tax contributions with in-plan Roth conversions. If the answer is yes, set a per-paycheck percentage to hit the plan limit by year end and turn on automatic conversions. That one switch can be a six-figure swing over a decade.

Dan Pascone (02:57): Mistake number three is leaving your employer match or profit sharing uncoordinated. You may be maxing your pre-tax contributions, but your company’s match might land differently than you think. The fix: confirm how and when the match happens. Then coordinate your deferrals so you capture every employer dollar early without tripping compliance tests.

Dan Pascone (03:19): Mistake number four is not having a written asset location policy. Without a plan, rebalancing over time puts the wrong assets in the wrong places. The fix is to create a one-page asset location IPS, which simply defines the hierarchy: bonds, REITs, and high yield go to tax-deferred; broad equity funds go to taxable; high-growth and long-horizon equities go to Roth— and add rebalance bands.

Dan Pascone (03:44): That way, changes only happen when weights drift, reducing churn and taxes.

Dan Pascone (03:44–04:17): Mistake number five—and this is a big one—is paying taxes that you don’t have to in retirement. I see this all the time. You’ve saved well, but your withdrawal plan is random. The fix is to sequence withdrawals deliberately. Now, everyone’s tax situation is unique and different, but generally speaking, you should start your withdrawals from the taxable accounts, then move on to traditional IRAs and 401(k)s, and save the Roth bucket for last. Use lower-income years to do Roth conversions or partial IRA draws. The right order can add years of tax-efficient runway.

Dan Pascone (04:17–04:42): Now that we know the mistakes, let’s set up an automated system to be sure that we avoid them.

Dan Pascone (04:42): Step one: create an inventory by tax bucket. List every account—401(k), IRA, Roth, HSA, taxable brokerage. Mark each one as tax-deferred, taxable, or future tax-free. When we do this for our clients, our software literally shows the dollars leaking from tax drag.

Dan Pascone (05:03): Step two is to map each holding to its tax home. Bonds and REITs: tax-deferred. Broad equity index funds: taxable. High-growth strategies: Roth. And if you run out of space, prioritize by tax pain and turnover.

Dan Pascone (05:03–05:30): Step three is to turn on the mega backdoor Roth if it’s available. Set a steady contribution so you hit your annual limit by year end and enable automatic conversions so those after-tax dollars don’t sit and generate taxable growth.

Dan Pascone (05:30): Step four is to automate rebalancing where taxes are lowest. Do it inside your IRAs and 401(k)s first. And if you must rebalance in your taxable accounts, use new cash or dividend redirects instead of selling.

Dan Pascone (05:30–05:55): Step five is to add tax-aware cash flows. Redirect dividends in taxable accounts to your highest-priority buys and set up a tax sweep when you realize gains so that April never surprises you.

Dan Pascone (05:55): Step six: write your one-page asset location IPS. Include your hierarchy, your rebalance bands, your Roth playbook, and your cash flow rules. This removes the guesswork, especially when life gets busy.

Dan Pascone (05:55–06:18): Now, here’s a quick case study. A VP of sales with a $1.2 million portfolio, bonds sitting in taxable, RSUs landing in the taxable brokerage, and no mega backdoor Roth. We moved bonds into tax-deferred, shifted broad equity funds into taxable, directed growth funds to Roth, and turned on the 401(k) after-tax conversions. The projected 10-year benefit: well over six figures, with zero added risk.

Dan Pascone (06:18–06:40): Now make it a family system. Do a 20-minute money huddle this month and cover three things: where each account lives—tax-deferred, taxable, future tax-free; which assets go where and why; and one action to complete this month. Maybe it’s the mega backdoor Roth or moving that bond fund.

Dan Pascone (06:40): At Tailored Wealth, we act as a fiduciary, building this architecture into one coordinated plan—investments, taxes, equity comp, estate, and risk. You get one dashboard, one team, and complete clarity.

Dan Pascone (06:40–07:04): For more executive-level insights, visit makingsenseofyourmoney.com. The link is below. The 100K mistake isn’t performance; it’s placement. Fix the location and keep more of what you’ve already earned. If this helped, like and subscribe and comment below: which move are you making first—turning on the backdoor Roth, moving bonds out of taxable, or writing your asset location IPS? I’m Dan Pascone. Let’s go get that 100K back.

Resources & Citations

Making Sense of Your Money – Executive Content Hub: https://www.makingsenseofyourmoney.com/
Tailored Wealth: https://www.yourtailoredwealth.com/
IRS – Types of Retirement Plans (401(k), IRAs): IRS Retirement Plans Overview
IRS – Traditional and Roth IRAs: IRS IRA FAQs
Plan documents: Check your employer’s Summary Plan Description (SPD) for details on after-tax contributions, in-plan Roth conversions, and match formulas. [Add direct links or PDFs if available.]

FAQs

What is asset location and why does it matter for high-earning executives?

Asset location is the strategy of deciding which accounts—taxable, tax-deferred, or future tax-free—hold each type of investment. For high earners in higher tax brackets, placing tax-inefficient assets (like bond funds and REITs) in tax-advantaged accounts and tax-efficient assets (like broad equity index funds) in taxable accounts can materially reduce annual tax drag. Over a decade or more, that difference may compound into a six-figure gap, even if your overall allocation and market performance are identical.

How big can the benefit of proper asset location really be?

Dan’s example shows that a 2% annual tax drag on a $500,000 account can translate into more than $170,000 of lost value over 10 years. The exact benefit for you will depend on your balances, tax bracket, and mix of investments, but the core point holds: reducing unnecessary tax drag can have a compounding effect. In many cases, you’re not taking more risk—you’re simply changing which accounts own which positions so you can keep more of what your portfolio already earns.

What is a mega backdoor Roth and how do I know if my plan allows it?

A mega backdoor Roth strategy uses after-tax 401(k) contributions plus in-plan Roth conversions to move additional dollars into a Roth bucket each year, above the standard Roth or backdoor Roth IRA limits. Some large-company and growth-company 401(k) plans support this, but it is highly plan-specific and subject to IRS and plan rules. The first step is to ask HR or review your Summary Plan Description for “after-tax contributions” and “in-plan Roth conversions,” then coordinate with your tax and financial advisors before implementing.

How should I prioritize assets across taxable, tax-deferred, and Roth accounts?

Dan’s simple hierarchy is to place bonds, REITs, and high-yield or high-turnover strategies in tax-deferred accounts when possible; broad, low-turnover equity index funds in taxable accounts; and high-growth, long-horizon equities in Roth accounts. In practice, you may run out of ideal “real estate” in each tax bucket, so prioritization and trade-offs are required. A written one-page asset location IPS can clarify your rules and help ensure that rebalancing and new contributions follow the same logic over time.

How does asset location interact with my retirement withdrawal strategy?

Asset location and withdrawal sequencing are two sides of the same tax-efficiency coin. In retirement, Dan generally suggests starting from taxable accounts, then moving to traditional IRAs and 401(k)s, and reserving Roth accounts for last, while using lower-income years for Roth conversions or partial IRA draws. The right order may extend your tax-efficient runway and improve after-tax outcomes, but the best approach for you depends on your income, state taxes, legacy goals, and other factors—so it’s important to coordinate with a qualified tax and financial professional.

When does it make sense to work with a fiduciary advisor on asset location?

If you have multiple 401(k)s, IRAs, RSUs, and a growing taxable portfolio—and you’re in a higher tax bracket—it may be worth having a fiduciary build a coordinated asset location and withdrawal plan. An advisor who acts in your best interest can help you map each holding to its ideal “tax home,” set up systems for rebalancing and cash flows, and integrate equity compensation, estate planning, and risk management. The goal isn’t more complexity; it’s a simple, repeatable framework so that taxes are managed proactively instead of by surprise each April.

Disclaimer

This content is for informational and educational purposes only and is not intended as tax, legal, or investment advice. Strategies discussed may not be appropriate for all investors and are subject to change based on individual circumstances, plan rules, and current law. Always consult with your own tax, legal, and financial professionals before making any decisions regarding your 401(k), IRAs, Roth accounts, or other investments.

Next Steps (CTA)

Ready to stop leaking six figures to taxes?

Visit the free content hub for high-earning executives at MakingSenseOfYourMoney.com for more step-by-step playbooks on tax-efficient investing, equity comp, and retirement design.
If you want one coordinated plan for investments, taxes, equity comp, estate, and risk, visit YourTailoredWealth.com to explore how our fiduciary team can build your asset location strategy for you.