Asset Allocation Drift Due to Taxes

William W. Jennings and Brian C. Payne

Financial Analysts Journal, 2025, vol. 81, issue 2, 29-38

Abstract: Spending from tax-deferred accounts like IRAs incurs taxes. These taxes induce deviations between the intended and the effective asset allocations: A dollar on a portfolio statement is not necessarily a dollar when evaluating the asset allocation. This drift can be larger than traditional rebalancing ranges. Investors underestimate the size of this tax-induced asset allocation drift at their peril. Investors should recognize the tax-induced asset allocation drift and adopt tax-adjusted asset allocation in consequence.

Date: 2025
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DOI: 10.1080/0015198X.2025.2459227

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