The same principles of
asset allocation
and
diversification
that are important to your overall investment
portfolio apply to your
IRA
as well. If all of your assets are
invested in stocks, your account may lose value in a stock market
downturn. Or, if you keep all your money in cash equivalent investments,
your account value may be eaten away by
inflation.
Taxing issues
However, because you owe tax at your regular
income tax rate on traditional IRA withdrawals, some experts suggest
holding long-term growth investments, such as new-company stocks,
in regular taxable accounts. You can keep the investments as long
as you want, you won’t owe tax unless you sell at a profit,
and if you’ve held the stock for a year or more, you’ll
owe tax at the lower long-term capital gains rate. Of course,
if you own these assets in a Roth IRA, you won’t owe any
tax at all.
Similarly, experts suggest you avoid investing
in
municipal
bonds
within an IRA. If you include them in a traditional
IRA, you’ll eventually owe income tax on the interest they
pay, even though that interest would have been tax free if you
had owned the bonds in a taxable account.
And while the interest would be tax free
in a Roth IRA, municipal bonds generally pay at a lower rate than
comparably rated corporate bonds. So you might be shortchanging
your bottom line.
You generally have until April 15 to
open your IRA for the previous year and make your contribution. Weekends and legal holidays may extend the date by a day or two.
