Free The Bogleheads' Guide to Retirement Planning by Taylor Larimore, Richard A. Ferri, Mel Lindauer, Laura F. Dogu, John C. Bogle

money that you will pay in income taxes each year, and those tax savings compound in your account. Less tax today earns more for your retirement even after you withdraw the funds and pay income taxes on those withdrawals. Consult your tax advisor for your best savings account option.

TYPES OF TAXABLE ACCOUNTS
    The main types of taxable accounts are personal, joint, and trust. When you set up a new account, the first question is whether you want to set up a retirement account, an account for general investing, or an account to save for college and children. General investing refers to a taxable account. The next question is whether you want a personal, joint, or trust account.
    A personal account is an account for a single person. There is one name and one Social Security number on the account, and one person makes all the investment decisions. A personal account is the simplest account you can set up.
    Joint accounts are for investors with a spouse, domestic partner, or significant others. Joint account registration designates that two or more individuals share ownership of the funds equally. The most common joint account is a joint tenancy with right of survivorship. Upon the death of an owner in this kind of account, the shares pass to the remaining owner.
    The advantage of a joint account is that when one of the joint holders dies, the surviving account holder automatically inherits the assets. There is no probate or legal proceeding required to transfer the assets to the surviving account holder. Probate, the legal process of distributing a deceased person’s property, can be expensive and time consuming. Joint accounts are a great option for ensuring that assets are immediately available to a surviving spouse, child, or partner.
    Of course, there are also special reasons why a married couple might not want to have a joint account. Perhaps one or both are in a second marriage. In that case, trust accounts may be more appropriate. Trust accounts are designed for more complex situations. Generally, their purpose is to reduce estate taxes, to provide more control over how assets are transferred to survivors, or both.
    An example of a trust is an AB Disclaimer trust. It provides a way to reduce your estate taxes when you have more assets than the federal estate tax exemption ($3.5 million in 2009). Before setting up a trust account with your mutual fund company, bank, or brokerage firm, you’ll need to first set up the trust. This means you will need to visit an estate-planning attorney who understands trust law and can word the document correctly. Trusts can be tricky business. Don’t try to write one on your own.
    There are many different types of trust accounts, and they are discussed in more detail in Chapter 16.

TAX LOSS HARVESTING
    An advantage of taxable accounts is the ability to use the losses that inevitably occur in some years to lower your tax bill. This is called tax loss harvesting. There are three benefits. First, tax losses represent an interest-free loan that defers capital gains taxes you would otherwise owe into the distant future and can even eliminate them entirely when you die. Second, you can use remaining tax losses to deduct $3,000 from your regular income taxes each year, which can mean an extra $750 or more in your pocket if you are in the 25 percent federal tax bracket. Third, any remaining losses are carried over into the subsequent years, so each year until your losses are used up, you can defer your capital gains and apply up to $3,000 against your income.
    Suppose that you had invested $10,000 into a mutual fund in a taxable account and that with the steep decline in 2008, your holdings are now worth only $6,000. Since you plan to continue holding that fund, you might be inclined to ignore the losses and wait for the fund to eventually recover. Instead, using tax loss harvesting, you’d sell the fund and then buy it back 31 days later. In the meantime, you can either hold the cash in a