Taxable vs. Tax Deferred

[Bogart]

I keep getting different opinions on asset allocation options between these two types of accounts. I'm 37 and have a taxable brokerage account and a Roth IRA. I would like to use one of them for DGI and one for growth stocks and some occasional trading. Which account would be best for tax purposes for which strategy?

[EricL]

I would prefer DGI and trading in the tax deferred account and long term growth stocks in my taxable.

That way you don't need to worry about taxes affecting sale decisions on your trades because there are no tax consequences and you also don't need to worry about taxes on dividends as they grow. In the taxable account you can let your growth stocks run and won't pay any taxes until sale time.

Another consideration is if you make under a certain threshold, qualified dividends are taxed at a reduced rate, or even a zero rate, if you make under a certain amount ($37K per year if I remember correctly). So if that is the case you can put your blue chips in your taxable account and keep your REIT's in your tax deferred account.

Here is some info from Wells Fargo talking about qualified dividends in a taxable account.

[ChadR]

Good advice EricL. Another thing to keep in mind is to keep any stocks that are subject to foreign withholding should be in your taxable account. That way you can recoup the taxes paid as a credit on your tax return. Otherwise, you will lose that money if you pay foreign taxes in a tax deferred account.

[EricL]

(10-30-2014, 03:09 PM)ChadR Wrote: Good advice EricL. Another thing to keep in mind is to keep any stocks that are subject to foreign withholding should be in your taxable account. That way you can recoup the taxes paid as a credit on your tax return. Otherwise, you will lose that money if you pay foreign taxes in a tax deferred account.

Depending on the country the company is domiciled in. I believe some don't withhold taxes on dividends if the stock is held in a tax-advantaged account.

[Turvok]

I have my DGI investments in a taxable account. I have a managed diversified portfolio in my Roth IRA. I found this works well because I only sell stocks about once a year, if that. I don't make a lot of capital gains and I'm only making about $2500/yr in Divs. That's not enough to bump me into the higher tax bracket.

[Main Street Stock Investor]

Bogart, I suggest you use your tax advantaged account as Eric suggested. If you are interested in more info, review my profile.

M$$I