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?
Pete wrote on [Wed, 27 Jun 2007 07:13:59 -0500]:
Not really.
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.
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
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.
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
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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