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Finance & Stock Groups Forum Index » Financial Planning » taxable vs. tax-exempt in a roth ira
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| Pete |
 Posted: Wed Jun 27, 2007 4:13 pm |
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just double checking but isn't it correct that if one has funds in a vanguard taxable
money-market (ie. VMMXX) fund in a roth ira, since there are no taxes if held 5 years
and after 59.5 years, it makes no difference versus a tax-exempt money-market (ie.
VMSXX) ?
since this is in a roth ira, there's no issue about the tax either way, so it's only a
matter of better return in one money-market account versus the other?
or is there something else to be aware of? |
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| Justin |
| Posted: Wed Jun 27, 2007 5:18 pm |
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Pete wrote on [Wed, 27 Jun 2007 07:13:59 -0500]:
Quote: or is there something else to be aware of?
Not really. |
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| PeterL |
| Posted: Wed Jun 27, 2007 8:02 pm |
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On Jun 27, 5:13 am, "Pete" <p...@te.cn> wrote:
Quote: just double checking but isn't it correct that if one has funds in a vanguard taxable
money-market (ie. VMMXX) fund in a roth ira, since there are no taxes if held 5 years
and after 59.5 years, it makes no difference versus a tax-exempt money-market (ie.
VMSXX) ?
since this is in a roth ira, there's no issue about the tax either way, so it's only a
matter of better return in one money-market account versus the other?
or is there something else to be aware of?
Don't hold any tax advantaged investment in a tax advantaged account.
This is true of either Roth IRA or regular IRA. In a Roth you will
not be taxed with you withdraw your funds for retirement. In a
regular IRA funds from a taxable MMF or a tax exempt MMF will both be
taxed the same way. |
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| Tad Borek |
| Posted: Wed Jun 27, 2007 8:02 pm |
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Pete wrote:
Quote: just double checking but isn't it correct that if one has funds in a
vanguard taxable money-market (ie. VMMXX) fund in a roth ira, since
there are no taxes if held 5 years and after 59.5 years, it makes no
difference versus a tax-exempt money-market (ie. VMSXX) ?
Pete-
As someone else already posted, you should never hold a tax-exempt
investment (such as a municipal bond, or a tax-exempt municipal
money-market fund) within a Roth IRA.
"Tax exempt" means that the interest you receive each year isn't taxable
on your federal or state tax return. But all interest earned from the
investments in a Roth IRA is free from tax, regardless of what type of
investment it comes from. And whether a Roth IRA withdrawal is taxed or
not has nothing to do with the source of the income within the IRA --
it's based only on the rules for Roth distributions.
So there's no benefit to earning tax-exempt interest within a Roth, and
in fact there' a penalty...tax-exempt rates are always lower than
taxable rates, so you should to for the higher-interest (taxable)
alternatives.
-Tad |
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| rick++ |
| Posted: Wed Jun 27, 2007 8:02 pm |
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Quote: Don't hold any tax advantaged investment in a tax advantaged account.
This is true of either Roth IRA or regular IRA.
If it had a higher return than a taxabIe investment I would.
However nearly all of the tax advantaged investments I am aware
pay out less as a taxable investment for the same asset class. |
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| catalpa |
| Posted: Thu Jun 28, 2007 1:30 am |
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"rick++" <rick303@hotmail.com> wrote in message
news:1182969437.179269.175350@g4g2000hsf.googlegroups.com...
Quote:
Don't hold any tax advantaged investment in a tax advantaged account.
This is true of either Roth IRA or regular IRA.
If it had a higher return than a taxabIe investment I would.
However nearly all of the tax advantaged investments I am aware
pay out less as a taxable investment for the same asset class.
Be very careful about only focusing on returns. If a tax advantaged
investment has a higher return than a taxable investment in the same asset
class it has a much higher risk. High risk investments don't belong in an
IRA. |
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| Will Trice |
| Posted: Thu Jun 28, 2007 3:17 am |
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catalpa wrote:
Quote:
High risk investments don't belong in an
IRA.
Why not? While it makes sense that you may not want to put a
tax-advantaged investment into a tax-advantaged account, I'm sure there
are many non-tax-advantaged mutual funds, not to mention individual
securities, with the same risk as your hypothetical high-return,
tax-advantaged investment. I would guess that these are still
appropriate for IRAs.
-Will |
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| kastnna |
| Posted: Thu Jun 28, 2007 5:13 pm |
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On Jun 27, 4:30 pm, "catalpa" <cata...@entertab.org> wrote:
Quote: High risk investments don't belong in an IRA.
I don't follow, please explain. Are you suggesting that mid and small-
cap value investments should not go into a tax advantaged account
also?
I can see how one might want to put high risk investments in a taxable
account so that the losses can be realized, but then so are the gains.
I'm being a bit dense today, please clarify.
Thanks |
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