Abstract: The disclosed embodiments relate to a system that optimizes an investment portfolio across multiple investment accounts with differing tax treatments. During operation, the system receives a call to optimize the portfolio for an investor. First, the system solves for a target asset allocation that specifies a desired allocation for investments in each account type in the portfolio across different asset classes or factor exposures. Next, the system performs a portfolio optimization operation to determine the optimal allocations across different investment options for all accounts in the portfolio with the objectives of maximizing expected after-tax alpha for the portfolio, minimizing a tracking error between the portfolio and the target asset allocation, minimizing taxes on realized capital gains, both now and in the future (for taxable accounts), and minimizing trade costs.