Why You Should Hold Your Dividend Stocks in Tax-Sheltered Accounts

Among dividend investors, where is it best to hold dividend stocks has become a frequent topic of debate. So here's the question: you have cash to invest in dividend stocks, do you: Pay income tax on the cash, and invest the rest in a taxable account; or do you Invest the entire amount of cash in a tax-sheltered account (IRA/401K/etc)? You might think that you should hold dividend stocks in a taxable account, because then the dividends would be taxed at the rate for qualified dividends, rather than be taxed at the rate for ordinary income. But it turns out you would be better off if you hold dividend stocks in a tax-sheltered account. I’ll start out by providing a specific example, then widen out my perspective to try to arrive at a general rule. Here's the example: You begin with $11,000. You are in the accumulation phase of your... Read more