Working With Tax-Deferred Accounts

You may not be aware of this important fact, but ever since the advent of the 15% tax rate on long-term capital gains, it no longer makes much sense to own stocks in either 401(k) or Traditional IRA accounts, since you'd eventually be paying 25% or more in taxes whenever you take a distribution from such accounts.

If you qualify, a Roth IRA is the best way to accumulate wealth because eventually, you will be able to withdraw the money completely tax-free. In your Roth IRA, then, you should own whatever you think will grow the most, and that generally means stocks.

Tax-deferred retirement accounts other than Roth IRA's are best for investments that don't enjoy the 15% rate on dividends and capital gains. These include corporate bonds, REITs, some preferred stocks, closed-end funds, and Index ETFs.

There is a good source of information on these and other fixed-income investments called Quantum Online, and you can find it easily in our "Links" section.

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