If you invest inside a tax-deferred retirement plan and also in a taxable account, you need to decide which assets go where. Tax-efficient stock funds (those that seldom make distributions) and low-dividend growth stocks may belong outside of your IRA.
If a stock or stock fund does not pay much in the way of dividends, you’re not gaining much (if anything) by holding it inside an IRA. Why defer tax if there are no taxes to defer, year after year?
What’s more, everything that comes out of your IRA is taxed at ordinary income rates, up to 39.6 percent. If you hold growth stocks and funds outside your plan, you’ll pay tax on long-term gains at only 20 percent (18 percent after a five-year holding period).
So what goes inside a plan? Stocks that pay hefty dividends and mutual funds with a record of making sizable capital gains distributions.
