Tax-advantaged accounts, such as IRAs and 401(k) plans, provide a great way to save for retirement. And if your only investments are in tax-advantaged accounts, then your primary focus should be on diversifying appropriately for your specific goals and risk tolerance. However, if you have assets in both non-tax-advantaged accounts as well as tax-advantaged accounts, it can be worth your while to understand the ramifications of holding different investment types in different accounts.

First, remember that some types of investments are not allowed in IRA accounts. This includes life insurance policies, art, gems, stamps, coins, and other collectables.

Next, consider investments that already have some of tax advantage of their own. For example, municipal bonds typically pay interest that is free from federal income taxes, while corporate bonds generate interest that is taxable every year. As such, holding municipal bonds in your standard brokerage account, and corporate bonds—particularly high-yield bonds—in your tax-advantaged accounts, as opposed to the other way around, could reduce the amount of taxes you pay on interest each year.

A similar analysis could yield tax savings for stocks or mutual fund investments. For example, stocks or  mutual funds that pay high dividends may generate lots of taxable events each year, while small cap stocks and small cap stock funds, which seldom pay dividends, would not. Mutual funds of all sizes are required to distribute capital gains to shareholders, so it may make sense to hold funds with large short-term capital gains distributions in tax advantaged accounts. Real estate investment trusts, or REITs, often generate interest that is taxed as ordinary income rather than at the more advantageous qualified dividend tax rate. As such, you may benefit from keeping any REIT holdings in a tax-advantaged account.

Finally, most investments, regardless of type, generate capital gains taxes when sold for a profit. As such, assets that you expect to turn over on a regular basis may benefit from placement inside of a tax-advantaged account where the gains generated are either tax-deferred, in the case of a traditional IRA or 401(k), or tax-free, in the case of a Roth IRA or Roth 401(k).

While the proper allocation and diversification of your investments should be your first priority, understanding the tax ramifications of where you hold your assets, can reduce your overall tax expenses.