How much do I really save by placing my bonds in a tax-deferred account?

The benefit depends on how much taxable income the bonds throw off and your tax bracket. Bond interest is taxed as ordinary income every year at your full rate, so sheltering it in a traditional IRA or 401(k) defers that annual drag until withdrawal. In a low-yield environment the dollar savings are small, which is why asset location adds only a fraction of a percent per year for many investors, according to research from Vanguard and Morningstar. The higher your tax bracket and the larger your bond allocation, the more it matters. Don't sell appreciated stock in taxable and trigger a big capital gain just to relocate bonds; the tax cost of moving can outweigh years of location savings.