Certain equities should be held inside your IRA or other tax-deferred retirement plan.
Real estate investment trusts (REITs) and REIT funds. REITs pay high dividends, which can be sheltered from current taxation. Some of the dividends paid by REITs are not taxable but most of the yield to investors is taxable, so they belong inside a retirement plan. Moreover, REIT dividends might not be tax-exempt, under President Bush’s proposal, so you wouldn’t be losing tax exemption by holding REITs in your IRA.
Small-company stocks. Often, promising small-capitalization stocks are difficult to identify so many investors invest in this asset class through mutual funds. Small-cap mutual funds, especially index funds, frequently recognize gains. Successful small-caps become mid-caps, which may force funds to sell them, taking profits. Such gains, which may be short-term gains, can be sheltered from current taxation inside of a tax-deferred retirement plan.