Weekend Reading: Similarities Between Roth IRAs And Non-Dividend Paying Stocks

This article appears as part of Casey Weade's Weekend Reading for Retirees series. Every Friday, Casey highlights four hand-picked articles on trending retirement topics and delivers them straight to your email inbox. Get on the list here.
Weekend reading roth ira and non dividend paying stock similarities Weekend reading roth ira and non dividend paying stock similarities
Weekend Reading

Comprehensive retirement strategies require understanding the growth potential and tax impact of investment vehicles. Two options in your tool box include Roth IRAs and non-dividend paying stocks.


Their similarities: Roth IRAs and non-dividend-paying stocks offer potential tax advantages. With a Roth IRA, contributions are made with after-tax dollars, but earnings and withdrawals are tax-free. Similarly, non-dividend-paying stocks do not distribute income to shareholders, so you may avoid paying taxes on dividends. Both options also require a long-term investment horizon to achieve optimal results. For non-dividend-paying stocks, you can reap rewards from the compounding effect by reinvesting profits back into the company.

Their differences: Roth IRAs are retirement accounts that have contribution limits, while non-dividend-paying stocks are individual investments that can be purchased without limits. Further, Roth IRAs have penalties for early withdrawals, while non-dividend-paying stocks can be sold at any time without penalty.

Deployed together: Holding non-dividend paying stocks until death is the equivalent of having a Roth. However, the article warns of the risks of this strategy, including the possibility of the company paying dividends, and suggests that holding onto the assets until death is the only way to avoid capital gains tax. Additionally, the article explores the use of non-dividend paying stocks to reverse required minimum distributions from traditional 401(k)/IRAs.

Pay close attention to how you reinvest your RMDs and you could save a bundle on taxes for yourself, as well as your family.