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Enerplus Corporation Message Board

  • sollid_companiess_only sollid_companiess_only Apr 19, 2014 11:03 AM Flag

    How to MAXIMIZE Your ERF Investment Returns

    Don't pay any Canadian or US taxes on your dividends. To obtain max performance of ERF returns, is to cash them in now. Take your profit or loss. Use the proceeds from your ERF sale and reinvest the proceeds in ERF stock in a self-directed Roth IRA account. Drip all your ERF dividends. You'll avoid both Canadian 15% taxes and US 15% taxes for the rest of your life on both your capital gains and dividend. Such a simple and obvious solution.

    In the self directed Roth account, you'll still be able to buy or sell your shares and invest in other stocks if you desire. The only drawback to the Roth is that you have to wait until you're 59 1/2 before you can withdraw your money. But that may represent years and years of tax free capital gains and dividend income.

    Think about it, especially if you're a young investor. Tax free capital gains and dividends can compound investment income dramatically over time.

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    • First of all, you are right about having the shares in a self-directed IRA. That's where I have mine and the dividend is dripped. It's great.
      The difference between a Roth and Traditional IRA are whether you want the tax benefit now or in the future.
      Both have limits that you can contribute in any given year. You can't contribute to a Roth if you make more than x amount of dollars in a given calendar year.
      The traditional IRA allows you to take a tax deduction now based on what you contribute and how much income you report.
      The Roth is funded with after tax money. When you start to use the money when you retire, it'll be tax-free. For anyone out there looking to open an IRA, open the Roth. It has other benefits as well.
      With a Roth, you do not have to start taking distributions at any age. A traditional will require you to in the calendar year after you turn 70.
      With a Roth, you can leave it to your kids if you don't use the money.
      With a Roth, you can take money out without penalty in special circumstances (i.e. to pay for education, as a down payment to buy a home, etc.)
      I had my son open a Roth with Schwab and now I fund it (he hasn't done anything about his retirement).

      I'm sure I'm leaving something out about IRAs but a Roth is the way to go for anyone wanting to open one. For those of you with a traditional that you want to convert to a Roth, you probably won't be able to stand the tax hit you'll take,

      • 1 Reply to rthoms54
      • sollid_companiess_only sollid_companiess_only Apr 20, 2014 11:45 AM Flag

        Rthomas, first of all, let me congratulate you on your foresight of putting your ERF shares into a self directed Roth IRA. As I previously posted, you’ll save yourself 15% on the Canadian tax, 15% on the US dividend tax, and 15% on any capital appreciation that you’ll gain over the years. No taxes for you sir, congratulations.

        However, you do make a very wrong assumption about self directed Traditional IRA’s when you post, “The difference between a Roth and Traditional IRA is whether you want the tax benefit now or in the future." A lot of people think that is the case, but it’s not always.

        Approximately 50% of retirees, who prudently withdraw a portion of their Traditional IRA savings, will also never pay any taxes to Canada or to the US for dividends/capital gains. But besides paying no taxes on their Traditional IRA, they receive a great tax advantage that Roth IRA holders don’t. Traditional IRA investors can write off up to $13,000 annually, as an adjustment to their Federal income tax return.

        This could mean an annual tax savings of up to $3k for each year of their working/contributing life, $3k each year for your working career can add up to a lot of money. Again I emphasize, 50% of these investors will never be taxed a penny on their Traditional IRA, either before the investment or after prudent withdrawals from their Traditional IRA. A lot of investors don’t realize this. But I know this because I’m a trained/tested/volunteer tax preparer who prepares approximately 50-100 returns each year for the elderly.

        So, the question is, “How can you invest in a Traditional IRA and still pay no taxes on your withdrawals. Because of the length of the answer to this question, I’ll continue in a response to this post.

    • sollid_companiess_only sollid_companiess_only Apr 19, 2014 12:23 PM Flag

      There are other great tax advantages to opening up either a Roth or Traditional IRA with ERF shares included in your account.

      Both Roth and traditional IRAs qualify for an annual federal 'Savers Tax Credit'. The government pays you for saving for retirement.

      There are limits as to how much you can contribute annually to a Roth or Traditional IRA:
      1. $5500 if you're single and under 50 years of age, $6500 if you're over 50 years of age.
      2. $11,000 if you file Married/Jointly and you're under 50, $13,000 if you're both over 50.

      Finally, don't limit yourself to thinking of only about a Roth. The self-directed Traditional IRA has some advantages that a Roth doesn't. The big advantage is that anything you contribute to your Traditional IRA can be subtracted, as an adjustment, from your Federal 'Adjusted Gross Income', for tax purposes. As an example, say that your total income for a given year was $50,000 and you contributed $10,000 to a self directed Traditional IRA, you could subtract that $10k from your income. And your Adjusted Gross Income would be $40k instead of $50k. You'd save approximately $2,000 in taxes in this example.

      Whether you're young or old, you need to take advantage of all the tax benefits that self directed Roth/Traditional IRAs offer.

 
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