View Full Version : Roth IRA Strategy

01-20-2005, 03:32 PM
I recently made my 2005 contribution to my Roth IRA account and I'm wondering what would be the best strategy to use with my tax-exempt account? On one hand, I can see the benefit of using my Roth IRA to focus on tax free earnings for corporate bonds and REITs that generally derive most of their value from coupon and dividend payments. Yet on the other hand, I feel like I should use my Roth for more aggressive investing to offset taxes on any capital gains. What do you think? Keep in mind that either way I will maintain a diversified portfolio of stocks, bonds, REITs, etc. It's not a question of asset choice, but which account (taxable or tax-exempt) to allocate the assets. Thanks for your advice!

01-21-2005, 12:54 PM
Well, you want to put whatever investments will generate the most tax in your IRA. Currently, most dividends and long-term capital gains are taxed at a fairly low 15% rate. REIT dividends do not qualify for this special rate, so you should put those in the IRA. Short-term capital gains (from stocks held less than 1 year) are also taxed at a higher rate, so if you're going to do short-term speculating, that should be done in the IRA. A lot of actively managed mutual funds generate a lot of short-term capital gains, so if you like those (and you shouldn't), they should also be in the IRA.

03-02-2005, 07:16 PM
This strategy works if you will reinvest your tax savings. Since most (translated...nobody) computes their tax savings and invests that money also. I'd recommend putting the investment that will grow the most inside the Roth IRA.

Afterall, the Roth IRA grows tax free. I'd much rather have more money in my tax free account than a taxable account. Therefore, i'd place my stock investments inside my Roth IRA.