CFAI 10 practice prob 13 says client has funds in a tax deferred account and a taxable account. which of the following would be most apropriate in a taxable account in a flat and heavy tax regime, in which dividends and capital gains are taxed at ordinary rates and interest income is tax exempt? Assume that all assets are held in a client’s overall portfolio: a bonds b actively traded stocks c high dividend paying stocks answer: a is correct, tax-exempt assets are not appropriate for tax deferred accounts. in a flat and heavy regime, dividends and capital gains are taxed at ordinary rates and are not best choices for taxable accounts. Can someone please why its a?
because from the above given options, only bonds generate interest income whereas stocks generate dividend. so if the interest income is exempted in the taxable account ( as given in the question) then bonds would be appropriate asset as their interest income would be exempted from taxation
There’s no advantage to holding bonds in a tax-deferred account; the interest income isn’t taxed. There is an advantage to holding actively traded stocks and dividend-paying stocks in a tax-deferred account: the capital gains and dividends are taxable.
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It makes sense but I got tricked by the wording.