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I am 63. I have an IRA with contains funds rolled over from a company IRA plan and my SEP-IRA contributions. This IRA is just in money market funds at the moment. I want to invest in dividend-paying stocks.

However...Dividends would normally be taxed at 15%, I think, whereas distributions will be taxed at the usual income tax rates. Is there a way to keep the lower rate?

Karen
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If you qualify for a Roth IRA, you could do that, and then the dividends AND the distributions are not taxes. But you would lose the up front tax deduction (or have to pay taxes on a conversion).
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I am 63. I have an IRA with contains funds rolled over from a company IRA plan and my SEP-IRA contributions. This IRA is just in money market funds at the moment. I want to invest in dividend-paying stocks.

However...Dividends would normally be taxed at 15%, I think, whereas distributions will be taxed at the usual income tax rates. Is there a way to keep the lower rate?


if I understand your question, No

IRA distributions are taxed as income regardless of
'source', whether contribution, dividend, interest, cap gain,
........
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Dividends would normally be taxed at 15%, I think, whereas distributions will be taxed at the usual income tax rates.

Kinda, sorta......If they are 'qualified' dividends (not all dividends are) and you meet holding period requirements, for 2013, the tax rates outside of a tax-advantaged account will be 0%, 15% or 20%, depending on your marginal tax bracket. If they are not 'qualified', or you do not meet the holding period requirements, then they will be taxed at your marginal (ordinary income) rates if held outside of a tax-advantaged account. If they are held within a tax-advantaged account, they will be taxed based on how that account is taxed - for instance, a non-penalized Roth withdrawal is taxed at 0%, while a non-penalized pre-tax IRA withdrawal is taxed at your ordinary income rate. However, they will not be taxed until they are actually withdrawn, so you can defer the taxes on any type of dividend in a tax-advantaged account.

So, the first big issue is that you need to understand if the dividends that you will be recieving will be qualified. You can find a definition of qualified dividend in IRS Pub 550 http://www.irs.gov/pub/irs-pdf/p550.pdf

Is there a way to keep the lower rate?

Don't use a tax-advantaged account that is taxed at your ordinary income rates to invest in stocks that provide qualified dividends.

AJ
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