Individual Investment Account and Dividends Reinvested

[brindlepit]

CA


All - I've been buying Dow components - searching for stocks that pay average dividends. I'm investing for retirement, buying for cost-averaging and dividend yields. I'm up 23% for the year, fairly easy due to the under-value of a lot of good money making companies.

My question - I stupidly opened my investment account as a simple Individual account instead of a Roth - which I wanted. Since I will not sell these stocks, I know that I wont pay taxes on nothing sold/ nothing gained. However, do I pay income tax on dividends paid even though I reinvest all payouts?

If I opened a Roth and dividends were reinvested, would I pay income taxes on the money reinvested? Also on a Roth, would I pay gains on the reinvested dividends when i start taking payouts?

Advice: should I sell my stock, take the hit now and repurchase under a Roth?

Thanks for any help.

 

[vrzirn]

The answers to your questions are best answered by your financial advisor or accountant.
Pertinent areas would include: how much you contribute, how much is the account currently worth (and how large the tax bite for converting to the Roth), how many years do you intend to continue to work, what is your current tax bracket.
Dividends in an IRA are not taxable until you withdraw from the account. Upon retirement, a complicated formula is used to determine the mandated amount of withdrawal that is taxable. I would not sell the equities.
Also, you do not say if you are self-employed. If so, you might want to look into the huge advantages offered by a Defined Benefits Pension Plan.

 

[brindlepit]

vrzirn


Thanks for your advice. This year, my wife and I will speak with a tax and financial advisor. My wife is a controller, so in the coming years she will schedule our taxes, but she needs a guide.

Well, I openned the Roth account and will fund it separately. Eventually I will sell the securities and move the cash into the Roth - sometime in '04. 15% taxes on Dividends isn't alot, especially when the money is free anyway. It does lower my overall cost average, but so what.

No, I'm employeed - someday, self.

Thanks for your help.