No. of Recommendations: 1
Any dividends or trading profits that occur within an IRA do not incur an immediate tax liability.
In a traditional IRA, you pay taxes when funds are withdrawn. Until then you can trade; the stocks can split or throw off cash dividends, whatever, and there is no tax implication. When you withdraw funds, the withdrawal amount is taxed no matter whether it was your original investment, or dividends, or trading profits.
In a Roth, the amount invested was already taxed and if you follow the rules, you will never pay taxes on the dividends, nor on appreciation.
That means there are two types of stocks you'd like to put in your Roth: the next Microsoft, which will produce lots of capital gains that you will never pay tax on; and the high-yielding REITS (or some utilities) that will throw off dividends on which you will not pay tax.
The REITS, however, probably won't show a lot of capital appreciation. Some, yes, but probably not 5-baggers.
In a taxable account the REIT dividends would be taxed at your marginal rate. The profit on the next Microsoft can be taxed as long term capital gains.
A stock producing a LOT of capital gains is great in a Roth, but not so good in a traditional IRA, where that gain will be taxed at your marginal rate.
So you can see there are a lot of fine points here!
Best wishes, Chris
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