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Author: vtaeger Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 76079  
Subject: Re: DRIP V. IRA Date: 2/11/1998 11:57 AM
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Kdub asked if he is better off investing in an IRA
or a DRIP. Pixy replied that you should compare
the expected rate of return on the investment.

I have to disagree with Pixy. IRAs and DRIPs
are forms of ownership not types of investment.
AFAIK any stock that can be purchased as a
DRIP can also be purchased in an IRA. First
decide what you want to own, then decide how
you want to own it.

The advantage of DRIPs are lower commissions
particularly when invest small sums, such as
dividend payments. IRAs have tax advantages.

If you have $2000 lump sum to invest long term
for retirement, IMHO your better off with an IRA.

If the stock does not pay dividends the DRIP is
of little benefit. If the stock does pay dividends,
any dividends in the DRIP will be taxed as
ordinary income.
This tax hit is more than the opportunity cost and
commissions if you leave the dividend in a money market fund to
be invested with the next years $2000 IRA
contribution.

The main disadvantage of an IRA is that you
can only invest $2000 per year. This results
in a small accounts which can have high commissions,
and limited diversification. The best way
round this is to contribute every year to make
the account larger.
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