rfj... thanks for clarifying the tax advantages of putting Canroys in taxable accounts. Before your clarification, my gut feeling had been that such investments should be in tax-deferred accounts to avoid tax complications.
Realizing now that my intuition was wrong, I have started researching the principles underlying asset allocation between taxable and tax-deferred accounts.
I came across the following statement by David Adler in a June 1, 2007 article published in Financial Planning:
“Holding high-dividend-paying stocks in taxable rather than tax-deferred accounts also has the potential to increase after-tax returns, since dividends are already taxed at the lower, long-term capital gains tax rate. Under most scenarios, this can more than offset the higher tax investors might face when taking a distribution from the tax-deferred account, even after accounting for the value of tax-free growth.”
This statement once again highlights that my intuitive feeling that high dividend stocks should be held in tax-deferred accounts needs to be seriously questioned.
As a related issue... it is my understanding that the reduction of the dividend tax to 15 percent is scheduled to expire at the end of 2008 unless extended by congress... I presume that if The Jobs and Growth Tax Relief Reconciliation Act of 2003 is not extended, then the high yield stocks should be reallocated to tax deferred accounts.
AI
