Author Topic: REIT in post-tax account  (Read 2539 times)

vespito

  • Stubble
  • **
  • Posts: 102
  • Location: CA
REIT in post-tax account
« on: September 25, 2013, 01:49:02 PM »
Hi all,
I understand that tax inefficient investments should be held in tax advantaged accounts.  Right now, I have a Vanguard REIT fund in my brokerage account.  My thought process is that I would like access to some income (producing funds) before 59 1/2.  Right now I only have about 5k in this fund.  Do you think that the tax consequences will make my thinking not valid (assuming I am at a 25% tax rate)?

The other option is to have my Roth IRA consist of only the REIT fund.  I just opened the Roth IRA, so I have a tad over 1k in it although I hope to max out by end of year.  I'll admit to being lazy and using a target fund for this account.

I do not own a home, nor expect to in the near future.

If it matters, I have what I feel is a solid 401k portfolio with Vanguard that recently hit over 150k (first year I come close to hitting the contribution cap) - hooray!.

I am planning on speaking to a Vanguard advisor in the next few months; I want to wait and see what the adjustment to my very recent commitment to the mustachian lifestyle is like.  I think it will allow me to ask more informed questions, especially regarding savings contributions.

seattlecyclone

  • Walrus Stache
  • *******
  • Posts: 5285
  • Age: 35
  • Location: Seattle, WA
    • My blog
Re: REIT in post-tax account
« Reply #1 on: September 25, 2013, 03:25:57 PM »
You generally want to put REITs into a tax-advantaged account because their dividends are taxed at your normal tax rate instead of the lower qualified dividend tax rate when you have them in a taxable account. Remember that you can get income through selling appreciated shares just as easily as you can get income through dividends. When REIT dividends are taxed at a higher rate than capital gains, it makes more sense to go for the capital gains in your taxable account and the REIT dividends in your tax-advantaged account.

tooqk4u22

  • Handlebar Stache
  • *****
  • Posts: 2297
Re: REIT in post-tax account
« Reply #2 on: September 26, 2013, 08:07:22 AM »
If your worried about retirement then buy them in the tax advantage accounts unless your income is low enought where taxes don't matter - the 25% bracket is not that level. 

Remember to look at your total asset allocation between pre/post tax accounts - just because it is in a tax advantage account doesn't mean you can't get the income.  You would just get it by selling shares of your taxable account holdings in similar amount.

Example:
Tax-advantage account
1.  $100K in REIT Fund pays 4% = $4k income.
2.  Reinvest $4k into Total Market Fund.

Tax acct:
1. $100k in Total Market Fund.  Sell shares that equal $4k to generate income equivalent to REIT at lower tax rate. 

The transactions maintain your holding levels but shifts the tax burden.

vespito

  • Stubble
  • **
  • Posts: 102
  • Location: CA
Re: REIT in post-tax account
« Reply #3 on: September 26, 2013, 09:30:04 AM »
Seattlecyclone and tooqk4u22 - Thanks for the response.  I am now planning on moving my REIT allocation into tax advantaged accounts.  I appreciate the info.  I've been focused on getting money into these accounts, I really need to give more thought on how I plan to take income from them.