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Financial Planning / Tax Strategies


Subject:  Re: Fiscal cliff and dividend paying stocks Date:  12/23/2012  8:43 PM
Author:  Wradical Number:  117213 of 127753

It seems to me letting the tax rate on dividends increase would discourage investment in dividend paying stocks. These value stocks have been a part of my portfolio for years but now I'm seriously starting to think of selling all shares in all stocks, hang onto the cash until after tax season then reinvest elsewhere.

If I understand correctly this means that you'd be recognizing substantial capital gains in the process, such that you need to wait until the tax returns are done to know how much cash you have available.

I'd suggest that you make a serious estimate of the taxes due BEFORE you sell, to evaluate this strategy properly. (Some people actually pay us for this kind of advice.)

And as to reinvesting elsewhere, in what? Bonds? The yield on bonds have never been worse in my memory, perhaps not in my lifetime.Preferred stocks? Maybe. But fixed income investments are just that - fixed - without growth in dividends that common stocks provides. REITS? Maybe. But they're at least as risky as stocks.

There is some merit to recognizing gains this year instead of next year, with other things being equal , as capital taxes will probably never be lower, and might well be higher in 2013. BUT other things being equal in this case means you're inclined to sell in the first place.

When thinking of reinvesting I've been told to purchase the same stocks in my RothIRA, I have some dividend stocks there today but not all. This concerns me.

What concerns you? Having investments in a Roth IRA makes whatever you invest in equal in terms of tax considerations, as does a traditional IRA.

And as long as you have investments in taxable personal accounts, they have to be invested in something sensible.

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