Taxable or Tax-Deferred Account: How to Pick

Which investments you hold matters (and in what proportions), but so, too, does where you hold them, whether it's in a tax-advantaged account or a taxable one. A recent lawsuit against Vanguard Group reveals how important such a decision can be. 

Earlier this year, three investors sued Vanguard for negligence and breach of fiduciary duty after the investment company's made a substantial distribution in late 2021, generating an unexpected tax bill for the plaintiffs (and other Vanguard investors). (Mutual funds are required to pass on any realized net gains to fund shareholders at least once a year.) But if the investors had held those mutual fund shares in tax-sheltered accounts instead of in taxable ones, the unwelcome tax bill