Author Topic: REIT Tax Efficiency - Tax Free Account Question  (Read 2010 times)

NWOutlier

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REIT Tax Efficiency - Tax Free Account Question
« on: December 11, 2014, 02:29:25 PM »
Hi Everyone,

I believe I know the answer to my question, but I need my confidence boosted before I make some purchases in my ROTH IRA or 401k. 

REIT's are not tax efficient (http://www.bogleheads.org/wiki/Principles_of_tax-efficient_fund_placement)  - so, per the article it states to keep them in a tax free account (or tax advantaged).  In my case, I want to purchase an REIT (Vanguard for Roth or Fidelity for 401k) here are the fund mappings http://www.bogleheads.org/wiki/Fidelity.

If I purchase an REIT in my ROTH - VGSLX. I feel confident the growth and withdrawal is tax free... are the dividends? 

thanks in advance, and please no beatings - ;o)

Best Regards,

Steve (NWOutlier)

Cheddar Stacker

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Re: REIT Tax Efficiency - Tax Free Account Question
« Reply #1 on: December 11, 2014, 03:27:35 PM »
Yes. Tax free. And REITs really only belong in Roth, T.IRA, 401k space as you mentioned. The dividends are not qualified so they are taxed at ordinary rates in a taxable brokerage account.

NWOutlier

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Re: REIT Tax Efficiency - Tax Free Account Question
« Reply #2 on: December 11, 2014, 08:29:45 PM »
Ugg, so if I choose to never sell shares out of my ROTH IRA, but only used the dividends, I'm still taxed when I accept the dividends as payment.. (but not when Div's are rolled back in)

I'm not liking REIT's - at all.....


Steve

MDM

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Re: REIT Tax Efficiency - Tax Free Account Question
« Reply #3 on: December 11, 2014, 09:13:10 PM »
Ugg, so if I choose to never sell shares out of my ROTH IRA, but only used the dividends, I'm still taxed when I accept the dividends as payment.. (but not when Div's are rolled back in)
I'm not liking REIT's - at all.....
Not sure why you are singling out REITs for displeasure here.  See http://www.irs.gov/publications/p590/ch02.html#en_US_2013_publink1000231057

As far as Roth withdrawals go you have contributions, and you have earnings.  That's it - no distinction on the type of earnings, so REIT earnings = index fund dividends = CD interest, etc.



Cheddar Stacker

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Re: REIT Tax Efficiency - Tax Free Account Question
« Reply #4 on: December 11, 2014, 09:24:32 PM »
Ugg, so if I choose to never sell shares out of my ROTH IRA, but only used the dividends, I'm still taxed when I accept the dividends as payment.. (but not when Div's are rolled back in)

I'm not liking REIT's - at all.....


Steve

I think you misunderstood what I said. Once its in the roth, no more tax. Reit or no reit.

If you invest in a REIT in a taxable brokerage acount, the dividends are taxed at ordinary rates.

NWOutlier

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Re: REIT Tax Efficiency - Tax Free Account Question
« Reply #5 on: December 12, 2014, 11:34:25 AM »
Oooh!

yes, I did not understad; so you're saying if I buy REIT in my ROTH IRA, it's tax free forever whether I sell and have gains or I have dividends paid to me.  Correct?

Steve

seattlecyclone

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Re: REIT Tax Efficiency - Tax Free Account Question
« Reply #6 on: December 12, 2014, 11:53:48 AM »
Yes. Anything you put in your Roth IRA is tax-free as long as it stays in the Roth. When you take the money out, it's tax-free as long as it's a return of principal or a qualified distribution (i.e. post-age-59).