Thursday, July 21, 2016


Where to best allocate investments - IRAs vs. Taxable account

IRAs are a great way to defer taxes (traditional) or eliminate taxes on capital gains (Roth). I have been researching what is the best place to allocate different investment options while I am building my portfolios and here's the net net.

What is best for IRA accounts:
  • REITs - the REIT distributions are taxed at a higher tax rate as most REIT dividends are non qualified dividend so instead of paying 30+% in taxes - put them in IRA and enjoy higher than normal yields.
  • BDCs - Same thing as REITs. These companies have above normal yields.
  • GLD - I found out that gold is considered collectible and is taxed at a higher short term capital gains rate even if your capital gain is long term. So why not put in IRA.
  • Your most conviction growth stories, cyclicals or stocks where you want to sell for quick gains.

What not to buy in IRAs:
MLPs. There is this issue around unrelated business taxable income UBTI which creates a mess in terms of tax filing. Just avoid that issue altogether by not holding MLPs in IRAs.

What to buy in taxable accounts:
Your core DGI holdings that you want to hold for long time. Again, the dividends are taxed at a lower rate and assuming you hold things for long time your cap gains if any will be taxed at a lower rate of long term cap gains rate.

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