555 wrote:It's not clear to me that REIT in non-deductable IRA is better than REIT in taxable. It depends on how the return is split between dividends and cap-gains. Have you analyzed this?
Wiki article link: Vanguard REIT Index Tax Distributions
REIT Index has been yielding about 4% in non-qualified dividends. In a 25% tax bracket, that is a tax cost of 1% per year, and you still pay 15% tax on the capital gains when you sell. It's better to pay 25% on all the gains and not pay taxes multiple times on reinvested distributions.
For example, suppose that returns are 8%, and the taxable dividend is 4%, which is 1% paid in tax and 3% reinvested. In 20 years in a taxable account, $10,000 will grow to $38,697, and $16,398 will be unrealized gains, with $2460 due in tax on the sale, so you will have $34,237. In 20 years in a non-deductible IRA, $10,000 will grow to $46,610, and you will pay 25% tax on the $36,610 gain, which is $9152, so you will have $37,468. The advantage of the IRA is even greater over a longer holding period.
Another benefit of the IRA is that you might choose to convert it to a Roth IRA in some future year; for example, you might be in a 15% tax bracket after you retire.