BiggerPockets Money Podcast Summary

Episode: How to Build a Tax-Efficient Portfolio (Advanced Strategies)
Date: November 11, 2025
Hosts: Mindy Jensen & Scott Trench
Guest: John Bowens (Equity Trust)

Episode Overview

This advanced episode delves into strategies for building a tax-efficient investment portfolio, focusing especially on alternatives to traditional stock-bond allocations. Hosts Mindy Jensen and Scott Trench, with expert guest John Bowens from Equity Trust, discuss how asset location (not just allocation) plays a key role in maximizing returns and minimizing tax drag—particularly when using self-directed accounts. The discussion covers Roth IRAs, HSAs, traditional 401(k)s, investing in real estate, private debt, crypto, precious metals, and advanced strategies like discount conversions, while emphasizing tailored approaches based on individual goals, risk tolerance, and financial circumstances.

Key Discussion Points & Insights

1. Asset Location: The Three Bucket Approach

[04:08–10:25] John Bowens introduces “asset location,” organizing assets across three types of accounts:

• Taxable Bucket: Brokerage, checking, savings, business accounts—profits taxed unless offset by deductions (e.g., real estate depreciation).
• Tax-Deferred Bucket: Traditional 401(k)s, traditional IRAs—tax deduction now, ordinary income tax upon withdrawal.
• Tax-Free Bucket: Roth IRAs, Roth 401(k)s, HSAs—after-tax dollars grow and distribute tax-free.

John: "You have to look at it through the lens of an investor yourself, your specific facts and circumstances in terms of what we call asset location." [04:08]

Best Practices (as per Scott):

• Aggressive/high-growth assets → Roth IRA/HSA (highest long-term compounding, tax-free withdrawals, inherited tax free)
• Conservative/low-growth assets → 401(k)/tax-deferred accounts (as future withdrawals are taxed)
• Mixed assets → after-tax brokerage (allows for strategies like basis recovery, use of capital gains rates)

2. Asset Types and Which Buckets to Use

[10:25–15:46]

• Higher-Yielding/High-Growth: Should ideally be in Roth IRA or HSA for tax-free growth, if risk is appropriate.
  • Caveat: If loss is possible, beware using a Roth, as lost principal and after-tax contributions can’t be recovered with a tax benefit.
• Short-Term, High-Yield Investments: Consider HSAs, especially for real estate lending/hard money loans with fast returns.
• Longer-Term Growth Investments: Roth IRA/Roth solo 401(k).

John: "Your higher growth, higher yielding investment opportunities ... you would hold in your tax free accounts like your Roth IRA. And you could also include in there your HSA." [10:43]

3. Tax Efficiency and Real Estate Investments

[17:39–20:40]

• Syndications/Depreciation: Highly tax-efficient investments (e.g., real estate syndications with bonus depreciation) are often better in taxable accounts to benefit from deductions and losses.
• Tax-Inefficient Investments: Investments generating lots of ordinary interest (private debt, lending) should go in tax-advantaged accounts, given the higher ordinary tax rate.

John: "Your tax efficient investments could be something like a real estate syndication... and with bonus depreciation, they're showing a lot of losses... Those types of real estate assets, one may want to do that in their taxable savings." [17:59]

John: "A great example [of tax-inefficient investment] is a loan secured by real estate or investing in a private debt fund. Why? Because it's all interest income... So that would be considered a tax inefficient investment." [19:22]

4. Market Volatility, Tax Loss Harvesting, and Specific Asset Classes

[24:44–29:23]

• Bonds: Tax-inefficient (interest income); best in traditional IRAs/401(k)s.
• Crypto: Highly volatile, produces capital gains or losses; often best in taxable accounts for tax loss harvesting.
• Gold/Precious Metals: Can be held in retirement accounts, but physical possession isn’t allowed; must be stored by a qualified custodian (per McNulty case, 2021).
• Active Trading: If you're a successful trader, consider doing it in Roth; otherwise, taxable accounts to benefit from loss harvesting.

John: "Bonds are going to be considered tax inefficient. Thus, we want to hold those where? Traditional or Roth bucket, probably traditional bucket." [25:14]

John: "Volatile investments generally go into taxable accounts [for] tax loss harvesting." [25:37]

John: "You can't hold physical metals yourself that are owned by your retirement accounts. A prohibited transaction under 4975 of the code." [27:14]

5. Prohibited Transactions & Self-Directed Accounts

[38:53–41:04]

• Stay passive in self-directed IRAs/401(k)s.
• Managing real estate or being a GP in a syndication with your retirement account as an investor can be a prohibited transaction.
• Desk work (e.g., paperwork, managing entities) is acceptable; physical “sweat equity” is not.

John: "If my IRA or 401k came in as an LP investor, arguably that's a prohibited transaction. 4975c1c furnishing of goods, services and facilities and 4975c1d which would be what we call the personal benefit rule." [38:53]

6. Discount Conversions & Advanced Tax Strategies

[43:56–46:18]

• Discount Conversion: Converting a less liquid/self-directed asset (e.g., private real estate syndication) from tax-deferred to Roth using an appraisal to justify a discount, thus paying taxes on a lower value at conversion.
  • E.g., $100k syndication appraised at $55k due to illiquidity/non-controlling interest, converting and paying tax on $55k, with $45k potential “tax-free” growth in the Roth.

John: "[A client] invested with the traditional side of her solo 401k plan into a real estate syndication... The CPA performed a valuation... that the value is 55,000, not 100,000, she then converted the asset in kind... paid taxes on 55,000 instead of 100,000." [44:53]

Notable Quotes & Memorable Moments

• Scott on Asset Location:
  "Best practices are as follows... keep the most aggressive portion of our investment assets inside of a Roth IRA or an HSA or equivalent." [01:30]
• John on Risk Management:
  "Some folks will actually take on too much risk in their retirement accounts in comparison to outside of their retirement accounts. That's not always a good way to go about things." [22:26]
• Scott on Practical Application:
  "I think that today... it's a good starting playbook... when they're thinking about, hey, I may not be wealthy today, but in 10, 15, 20 years... what decisions I make today will compound into what those options look like in the future." [41:04]
• On Compliance & Pitfalls:
  "You can't hold physical metals yourself that are owned by your retirement accounts... A prohibited transaction under 4975 of the code." [27:14]
• John’s Homework for Listeners:
  "I'm gonna have to go dive deeper into that discount conversion thing you were just talking about because that is very interesting to me and I was not aware of that." [47:13]

Timestamps for Important Segments

| Time | Topic/Key Insight | |-----------|---------------------------------------------------------| | 00:48–04:08 | Framing asset allocation vs. asset location | | 04:08–07:09 | Three bucket strategy explained | | 10:25–15:46 | High-growth vs. conservative asset bucket placement | | 17:39–20:40 | Tax-efficient/innefficient investments and asset placement | | 24:44–29:23 | Bonds, crypto, gold: where to hold them | | 31:42 | Where to trade in your portfolio (Roth vs. taxable) | | 38:53–41:04 | Prohibited transactions in self-directed accounts | | 43:56–46:18 | Discount conversions: advanced conversion strategy |

Takeaways and Final Thoughts

• Tax-efficient portfolio construction is not one-size-fits-all. Asset location (which account “bucket” you use) significantly impacts your real after-tax returns, especially for high-net-worth individuals or those engaged in alternative investments.
• High-growth, high-yield, high-risk assets can be best in Roth/HSAs—but excessive risk can be costly in these buckets.
• Real estate investments with tax-efficient loss allocations are often best in taxable accounts; straightforward interest generators are best tax-sheltered.
• Prohibited transaction rules require self-directed retirement investors to remain passive—avoid conflicts of interest or active business involvement.
• Advanced strategies like discount conversions require expert support, but can ethically maximize tax-free compounding.

Resources & Where to Learn More

• John Bowens at Equity Trust:
  trustetc.com, YouTube channel, the "Wealth Beyond Wall Street" book, and active in the BiggerPockets community.

"The power of compounding interest in the absence of taxation is really incredible in these Roth accounts." —John Bowens [42:05]

This episode is a must-listen for investors looking to optimize every lever of tax efficiency with advanced, actionable, but nuanced portfolio strategies.