What Goes in and What Stays out of your IRA

This is a very good article that has some information on what sorts of Assets you want In and Out of your Taxable and Nontaxable Accounts:

Stays In the IRA:

1. Stocks you Trade Frequently: You frequently sell shares within one year of a purchase. Any profits from such trades are short-term gains, taxed at up to 35%.

2. Mutual Funds That Make Large Capital Gains Distributions: Capital gains distributions can generate tax bills. And some of those profits may be highly taxed short-term gains. Consider the case of Fidelity Magellan (FMAGX) with their 25-cent dividend and a $22.11 long-term capital gain.

3. Mutual Funds with Small Caps: They may trade actively and generate gains for shareholders that are taxable if not held inside a tax-deferred account.

4. REITs and Funds with REITS in them: Most of the money REITs pay out to investors does not qualify for bargain tax rates of 15% or lower. Payouts are taxed as ordinary income, up to 35%.


Stays Out of the IRA:

1. Buy and Hold Stocks: If you seldom take gains, you will have little tax to defer. Holding them in a retirement account can waste the tax deferral.

2. High Dividend Paying Stocks: Stock dividends usually qualify for a low tax rate, no more than 15%. Holding dividend-paying stocks inside a retirement plan can waste the plan's tax break.

3. Municipal Bonds: The interest is exempt from federal tax and state levies on munis issued by the state in which you live.

4. Treasury Bonds: Even though the interest is subject to federal tax, it is exempt from state or local income tax.

5. Cash Reserves: In case of an emergency, you'll want tax-free access to this money.

6. International Stocks: If they don't generate capital gains. Foreign taxes may be withheld on these dividends. U.S. investors can get tax credits for withheld foreign taxes. But these credits have no value inside a retirement plan.