Originally Posted by Brat
O is the only holding in my IRA. DH's largest holding is Wellesley.
We are in the 15% tax bracket.
Is one better than the other to distribute in-kind?
From my 2012 income tax return info:
75.4% of distributions were ordinary dividends
24.6% of distributions were nondividend (return of capital) distributions.
69.6% of distributions were dividends
(42.8% regular dividends; 26.8% qualified dividends)
30.4% of distributions were capital gains
Looking at your O:
If you have 1/4 of your O distributions as return of capital, you technically have to track that and subtract it from your cost when you sell it, if it's in a taxable account. Since your O dividends will be taxed at the same 15% either way, it you would qualify for 0% capital gains taxes, then it would make sense to take your O shares and hold them in your taxable account, since you would receive your return of capital distributions (tax-free), sell it at a capital gain down the road, and then enjoy 0% capital gains taxes when you sell it (if you do qualify for 0% cap gains).
Looking at Wellesley:
You have more capital gains distributions from Wellesley than from O...but capital gains aren't as consistent as dividends from a REIT.
So, bottom line - since the return of capital from O is more 'consistent', it would produce net capital gains when you sell your position that would be taxed at 15% (or lower), while the Wellesley will not always produce about the same level of capital gains.
Therefore, I would recommend you hold your O in your taxable account. Either withdraw the shares in-kind, or sell it and buy it in your taxable account.