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San Juan Basin Royalty Trust Message Board

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  • bobdpaley bobdpaley Aug 8, 2005 2:38 PM Flag

    SJT - all time high

    After thinking about the Royalty Trust tax problem for about 6 months, and analyzing the investment, its huge dividend, and its recapture consequences when the Trust is sold, I have finally come to the conclusion that, except in certain special cases, it is actually better to hold the Royalty Trusts (including the CanRoys) in a 401(k) or in an IRA than in a standard taxable account. Like IC4X has said, if you hold it in a standard account, then you should die with it, because the tax consequences for your heirs are much simpler...IC4X has already explained why. All these Oil & Gas & Coal Royalty Trusts are great investments for the long term.

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    • The only downside to holding Canroys in a retirement account is that you permanently lose 15% of the dividend to withholding. I, myself, despite that do have Canroys in my IRA. If the yield is over 10% AFTER losing the w.h. and they're only paying out about 65% of earnings, it's still a great deal, plus in this environment there's plenty of appreciation as a bonus.

    • What about the new trust HTE?

    • I came to exactly the opposite conclusion and have shifted as much as possible out of IRA's into personal accounts. I'd be interested in your reasoning but here's mine. With SJT all of the income is essentially already sheltered by the depletion for a considerable time period. Yes that is recaptured if you sell. On the other hand if you own it in an IRA when you inevitably distribute the proceeds to your self it will all get taxes at the highest possible rate(even the cap gains portion which if held outside an IRA would be taxed at approx 1/2 that rate). With Canroys in an IRA you lose all of the 15% withholding(as opposed to approximately half in a personal account). In addition, some of the Canroys shelter a portion of the distribution as ROC(admittedly generally a minority of the yield).
      I try to limit my IRA investments to taxable debt and other non qualifying income distributions and positions that I believe I am likely to liquidate within a year.
      I'd be interested in your thought process.

      • 1 Reply to geo12ar
      • "On the other hand if you own it in an IRA when you inevitably distribute the proceeds to your self it will all get taxes at the highest possible rate(even the cap gains portion which if held outside an IRA would be taxed at approx 1/2 that rate)."

        1) The highest possible rate would be your ordinary income tax rate for the year of distribution. Could be 0.

        2) My shares are in a Roth IRA, as to which there are no taxes at all upon distribution (provided you meet the normal distribution requirements.)

        That's my understanding, anyway, but I am neither an accountant nor an expert (and hope someone will correct any errors.)

        And for that reason am glad not to be worrying about depletion, expiration of step-up in basis rule, etc. etc.

        Regards

 
SJT
18.65+0.41(+2.25%)Aug 20 4:00 PMEDT

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