"David Jensen" <DJNews1[at]xxAssociates.net> writes:

- quote -

What "lack of tax" on dividends? Dividends are taxed. Or
are you referring to the fact that since return of capital
distributions aren't dividends, they aren't taxable? (And
if you think about the economic meaning of a return of
capital distribution, it's not clear that they are doing
anything for you).

- quote -

Well, return of capital distributions reduce basis by the
amount of the distribution, thus increasing the ultimate
capital gain paid when the stock is finally sold. And if
basis gets reduced to zero, any further ROC distributions
become taxable as long-term gains.

- quote -

No, there isn't. Transferring stock out of an IRA is
treated for tax purposes as if you sold the stock in the
IRA, took a cash distribution, and purchased the stock
outside of the IRA with the case.

--
Rich Carreiro rlcarr[at]animato.arlington.ma.us

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"David Jensen" <DJNews1[at]xxAssociates.net> wrote:

- quote -

Yes. Also, if they paid for the advice to buy this kind of
investment in an IRA, they should ask for their money back.

- quote -

No.

--
Phil Marti
Clarksburg, MD

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I'm helping a retired friend with the following situation
and want to make sure that I advise them correctly.

They presently have an 80K investment in a Traditional IRA
in a Canadian Oil and Gas trust paying healthy dividends (+-
15%). Because of the lack of tax on dividends (except a 15%
withholding on the Canadian side) and because most dividends
are classified as a return of capital for these stocks,
there is no tax due on the US side for these stocks. Since
they are in an IRA, however, any growth in the IRA is
ultimately taxed upon withdrawal, so the otherwise tax free
dividends are not such in the long run as long as they are
kept in a traditional IRA.

Since the individual has equal funds available in a non-IRA
investment account, it seems like they would be better off
to sell the stock in the IRA account and buy back an equal
amount in a non-IRA account. This would keep their risk
level the same but would keep them from incurring ultimate
taxes on the dividends. Is this idea sound?

If it is, is there some way to transfer the stock from the
IRA to the non-IRA account without selling it and then
buying it back in another account and yet not have it appear
as a distribution. In other words can the IRA account and
the Non-IRA account trade cash in return for stock?

Another option would be to convert the IRA into a ROTH IRA
so that all growth, capital gains, and dividends would be
tax free. The problem there is that it would put them in a
fairly high marginal tax bracket this year. It might still
make the most sense, however.

Thanks in advance for your thoughts.

--
David Jensen
Change the xx in my email address to MJ for my real email address. Thanks.

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