Question for those who have a tax-sheltered account, and how to take even more advantage of it.
Join Date: Sep 2004
Posts: 1,984
Assuming markets are efficient, shouldnt investors who have tax-sheltered accounts forego from investing in divident-paying stocks?
The reasoning is that dividends are subjected to an automatic withholding tax at the company, while capital gains are tax-free in such accounts.
If we take a high-dividend paying stock of 5% yield and assume a 20% tax (yields and tax rates vary), we get a 1% tax per annum, wich is non-trivial.
If so, are there non-dividend paying ETF's or other low-cost diversification methods of obtaining a basket of non-dividend paying equities?
Join Date: Jan 2005
Posts: 11,290
My understanding is that taxes are not withheld when the shares are held in a tax sheltered account. This is definitely the case with foreign shares held in a Canadian RRSP, for example.
Join Date: Dec 2002
Posts: 295
I don't think I have ever had taxes witheld out of dividends. I always get a section of my end of year statement that lists dividend income and then it gets factored into taxes at that time. So if it was in an IRA or 401K then there wouldn't be tax due. Maybe foreign dividends might have different treatment? I think most of mine would have been domestic dividends.
Join Date: Sep 2004
Posts: 1,984
I am automatically charged anywhere between 15-30% taxes on dividends.. on both US stocks and international stocks.
Join Date: Dec 2002
Posts: 295
Oops, I just noticed this part of the info under your name.
Location: Porto Alegre - Brasil
I have no clue how it works in Brasil. Maybe your tax-sheltered accounts and or tax laws related to dividends are different. If you are really there then yes I could see how they probably would withhold tax from your dividends. You need to find someone who knows about the tax treaties between US and Brasil. I think you might somehow be able to file at the end of the year to get some of that back? Or maybe that is only for UK people.
Unless you get an answer from someone who knows about Brasil tax law here you might want to ask a local accountant or something.
