REIT Tax Efficiency - Tax Free Account Question

[NWOutlier]

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]

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]

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]

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]

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]

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]

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-59½).