What Stocks Should I Avoid in a Roth

[raria]

Hi Y'all

I am an unsophisticated guy. But I do understand due to their unique tax advantages, one should put into Roths the stocks you intend to hold for a very very long time as they can grow tax free and have no withdrawal taxes.

But are there any stocks/equities to avoid putting in a Roth? It seems there are some like Master Limited Partnerships (MLPs) tgat should be avoided due to UBTI?

Anything else?

 

[RunningBum]

There's no need whatsoever to hold a stock inside a Roth for a very long time. Think about it. Anything in a Roth grows tax free, so you can sell a stock there at any time and not worry about whether it is LT or ST because there are no cap gains.

It's your taxable account you want to try to hold stocks for a long time, at least a year, to get long term cap gains. Inside an IRA, whether traditional or Roth, anything that happens within the IRA is not a taxable event. When you withdraw from a tIRA the whole withdrawal is taxed, whether you held the investment for a day or for 10 years.

I don't know much about MLPs so I have no advice there. If something causes a lot of tax complexity without a benefit, that would seem to belong in a Roth.

 

[ncbill]

There's no need whatsoever to hold a stock inside a Roth for a very long time. Think about it. Anything in a Roth grows tax free, so you can sell a stock there at any time and not worry about whether it is LT or ST because there are no cap gains.

It's your taxable account you want to try to hold stocks for a long time, at least a year, to get long term cap gains. Inside an IRA, whether traditional or Roth, anything that happens within the IRA is not a taxable event. When you withdraw from a tIRA the whole withdrawal is taxed, whether you held the investment for a day or for 10 years.

I don't know much about MLPs so I have no advice there. If something causes a lot of tax complexity without a benefit, that would seem to belong in a Roth.

Unfortunately, tax on UBTI applies to both traditional and Roth IRA accounts:

Unrelated business taxable income (UBTI)

Yes, Your IRA Could Be Taxed, Even a Roth IRA

Can I Own Master Limited Partnerships (MLPs) in My Roth IRA?

"It is usually a good idea to hold individual MLPs in a taxable account versus a retirement account."

 

[raria]

Thank you @ncbill. That's what I read as well. What other types of securities should I NOT hold in a Roth IRA?

Unfortunately, tax on UBTI applies to both traditional and Roth IRA accounts:

Unrelated business taxable income (UBTI)

Yes, Your IRA Could Be Taxed, Even a Roth IRA

Can I Own Master Limited Partnerships (MLPs) in My Roth IRA?

"It is usually a good idea to hold individual MLPs in a taxable account versus a retirement account."

 

[RunningBum]

You may want to avoid foreign stock funds in a Roth. There are foreign income taxes that reduce your distributions, and in a Roth you can't get the foreign tax credit. That said, I'm holding VTIAX in my Roth. I didn't like how that fund threw more taxable distributions than the domestic index funds I hold, which increased my MAGI and threatened to put me over the ACA subsidy cliff. Also, any credits over your tax liability are carried over for up to 9 or 10 years, and I just don't have enough taxes to use the credits.

See what the Bogleheads wiki on tax efficient placement says: https://www.bogleheads.org/wiki/Tax-efficient_fund_placement

 

[F.I.R.E User]

Individual ones.

I just have FZROX.

 

[TheWizard]

Avoid all individual stocks in your Roth IRA.
Buy only VGT and QQQ...

 

[gcgang]

Avoid stocks that go down.

 

[ncbill]

Avoid stocks that go down.

"Don’t gamble!

Take all your savings and buy some good stock and hold it till it goes up, then sell it.

If it don’t go up, don’t buy it."