Can you describe a situation where this would be important. Thank you for your help with understanding this kind of retirement plan.

I don’t know your age, but eventually you may want to include bonds in your asset allocation. The type of bonds you buy (or bond mutual funds) depends on the tax status of the investment vehicle. Treasury strips (zero coupon bonds) and inflation-protected bonds are easier to handle (tax wise) in a tax deferred account – it makes your tax situation easier; and junk bonds so you defer tax on the high yield. Municipal bonds should be in a taxable account (since they are not taxable). If you put a muni in an IRA you convert tax free income into taxable income – bad move.

Stocks held long term should be in a taxable account so that you control the capital gains timing and get a lower tax rate for the capital gain. A $10k capital gain in a 401k is taxed as ordinary income when distributed, which is OK if you’re in a much lower tax bracket after retirement (that was true in the past, but may not be in the future). In a taxable account pick mutual funds that are tax efficient, like index funds; put the fast trading mutual funds in an IRA to shelter the short term gains that trading generates.