A midlife money checkup

Are you still on pace to reach your goals despite today's market woes? Find out by taking this nine-step test of your financial health. It won't hurt a bit.

3. Are your investments in the right accounts?

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If you need to rebalance, do so within your 401(k) or IRA, where you won't owe taxes on gains. Outside your plans, selling funds can trigger a tax bill. Instead, consider directing new cash into more tax-efficient funds.
3. Are your investments in the right accounts?
If you've been stashing away money for 15 or 20 years or more, you've probably built up savings in both tax-deferred plans, such as a 401(k) or an IRA, and taxable accounts. Now you need to consider what's called asset location - that is, putting investments that trigger a high annual tax bill in tax-deferred accounts and keeping more tax-efficient ones outside your plans.

A study by Vanguard found that effective asset location can improve your after-tax returns by as much as 10% over 10 years. Investments that throw off a lot of income are tax-inefficient. Prime examples: bond, real estate or high-dividend stock funds. If the payouts are in the form of interest or short-term capital gains, you'll owe taxes at a rate as high as 35% on the money.

Growth stock and index funds are tax-efficient. They tend to generate few short-term payouts, while any long-term gains would typically be taxed at a 15% rate. Municipal bond funds are also low (or no) tax, and the case for owning them is quite strong now
Last updated February 11 2008: 1:33 PM ET

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Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer LIBOR Warning: Neither BBA Enterprises Limited, nor the BBA LIBOR Contributor Banks, nor Reuters, can be held liable for any irregularity or inaccuracy of BBA LIBOR. Disclaimer. Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.
Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer LIBOR Warning: Neither BBA Enterprises Limited, nor the BBA LIBOR Contributor Banks, nor Reuters, can be held liable for any irregularity or inaccuracy of BBA LIBOR. Disclaimer. Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.