"Tax drag" doesn't sound very pleasant, and it isn't. It's the friction that taxes inflict on your investment returns, robbing you of easy, risk-free additional money you could be making to live on in retirement.

Why aren't you making it? Because it means spending time thinking about taxes. And not just taxes, but the even more stultifying topic of tax efficiency.

But when you think about amassing more assets for retirement without (a) hoping and praying for higher returns, and (b) having to save even more than you already are, it starts to sound pretty good. At least, that's what the automated-investment service Betterment hopes, as it announces a new algorithmic service today that minimizes tax drag. Betterment estimates that a typical customer with all three types of account—taxable, tax-deferred (such as a traditional IRA), and tax-exempt (a Roth IRA)—could boost his or her portfolio's return by 0.48 percent a year, or 15 percent over 30 years.

What's new here is not the concept. Financial advisers have long put assets considered tax-efficient, such as stocks, in taxable accounts, and bonds, which are considered the least tax-efficient asset, in tax-deferred accounts.  And a financial planner's judgment can be valuable—say, in advising on strategies like converting money in a traditional IRA to a Roth IRA later in life. Figuring out the timing and logistics of moves like that can save money on taxes in a way a robo-adviser can't, said Chris Chen, a certified financial planner based in Waltham, Mass.

What's new is that Betterment's algorithm, Tax-Coordinated Portfolio (TCP), does all this automatically, and continuously, using whatever assets and accounts you have on its platform. And it maintains your overall asset allocation between stocks and bonds while it does so, using passively managed index funds to create its recommended portfolios.“Asset location services are definitely a valuable thing, at least for those who have multiple accounts with different tax types and treatments,” said financial planner Michael Kitces, who has analyzed the topic on his Nerd’s Eye View blog. “It’s been among the best practices for financial advisers for about a decade, driven primarily by what we call ‘rebalancing software.’ Now we’re seeing that tax strategy shift to robo-advisers, just as tax-loss harvesting did a few years ago.” The basics of the strategy are simple. Stocks are considered tax-efficient because they tend not to throw off a lot of money that would get taxed annually at ordinary income rates. Long-term investors pay the bulk of any capital gains tax when they eventually sell, and long-term gains are currently taxed at 20 percent, well below the top five income tax brackets. Bonds, however, throw off lots of income annually and are taxed at ordinary income rates. So you want your bonds in a tax-deferred account, where that income can compound over many years.

TCP treats separate accounts as one big portfolio, divvying up assets among them depending on their tax treatment and adjusting for withdrawals or other transactions along the way.

"We think that pretty soon everyone will have to do it, that it will be table stakes," said Boris Khentov, the robo-adviser's specialist in tax and securities law .Betterment's algorithm also considers the absolute size of an asset class's expected return when deciding if a holding should get permanent shelter from tax. In a white paper, the robo-adviser noted that "savings from avoiding any annual tax do compound, but a small enough number will not amount to much" and that "a small portion of a large return could be worth more saving than a large portion of a small return." So if you have a taxable account and a tax-exempt (Roth) account, it could make sense to put a "high-growth, low-dividend stock fund into the Roth, instead of a [lower-return] bond fund, even though the stock fund is vastly more tax-efficient."

It all sounds very logical. People aren't very logical. So what happens when the S&P 500 dives and a panicky client is tempted to sell from his most tax-efficient portfolio, perhaps the biggest one that holds his stock funds?  Betterment tries to avoid that reaction by showing the return across your entire portfolio of accounts, rather than focusing on movements in different buckets of money.

TCP isn't for people in the 15 percent tax bracket or below, who probably don't have the luxury of worrying about tax efficiency. In their situation, there's not much tax involved, and no arbitrage between paying an ordinary income rate and paying a preferential capital gains rate. Also, you don't want to include an account with assets that you might need to draw on in the short-term in something like a TCP.

The product is coming out just as tax reform is being hotly debated in the presidential race. Khentov said the algorithm was built to be very "operationally flexible." If the new administration changes the tax code, the algorithm is adjusted and "immediately propagates that across the account."