Householding: One Client, Many Accounts
Research Paper
December 7, 2023
Preview
Householding is the practice of applying a single target asset allocation across all family assets and managing those assets to produce the highest practicable after-tax return. Wealth managers of high-net-worth clients, particularly married U.S. taxpayers who file jointly, can offset the realized capital gains of one spouse with the realized capital losses of the other spouse. The option often substantially reduces the couple's total tax liability.
The holistic approach does present some operational challenges. The manager must continually monitor tax-lot information for multiple taxable and tax-deferred accounts and ensure the accounts are periodically rebalanced to the target allocation in the most-tax-efficient way possible, considering the assets' locations.
Percentages indicate share of household assets, excluding the family home. Spouse A has a taxable account invested in equity (34%), real estate (5%) and commodities (3%); a 401(k) invested in equity (6%) and fixed income (3%); a second 401(k) invested in equity 4% and fixed income (4%) and a taxable investment in private equity. Spouse B has a taxable account invested in equity (10%), fixed income (2%) and commodities (1%); a 401(k) invested in a target-date fund that holds equity and fixed income, and a Roth IRA invested in equity (8%) and fixed income (8%). Real estate is a real estate investment trust (REIT).
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