I have spent some time thinking about how best to handle the Shell dividend issue I recently experienced. As discussed earlier my RDSA dividends are subject to Foreign Dividend Tax, which is potentially a bit of a hassle for me to deal with. Rather than cope with this I have learned that due to their setup RDSB are not subject to dividend withholding.
The RDS.A shares are not a good choice for an IRA account, as the foreign taxes cannot be reclaimed from the IRS. The RDS.B shares, however, without this tax to deal with are a great choice for an IRA investment. See this article for a great discussion on the background of the two types of Shell shares and the benefits of investing in each using different vehicles.
Apart from the foreign tax issues, another item of import is that Shell pays a very generous dividend, currently yielding over 5 percent. Given the choice of a Taxable or an IRA account for my various holdings, it seems logical – all other things being equal – to locate the higher yielding holdings in a sheltered account. I’d rather pay tax on the dividend from a stock yielding 3% than one yielding 5%.
Based on both the foreign tax and dividend income tax considerations, I have decided to do a straight swap of my RDSA in my taxable brokerage account for RDSB in my Traditional IRA. Today I sold my 38 shares of RDSA at $67.51 (2,565.34) and purchased 38 shares of RDSB at $70.81 ($2,689.07) – the two issues do not sell at identical prices.
The sale means I have a gain of roughly $1.50 from my initial purchase back in May. This is probably going to prove taxable as short term capital gains, but I think any tax hit will be tolerable:)
Now this sale is completed I have a nice chunk of cash sitting uncommitted in my regular taxable brokerage account. I have an urge to purchase some more Nestle, so I have placed a GTC limit order for another 36 shares of NSRGY at $70. It is hovering around $72 per share right now, but hopefully I’ll get lucky and have the opportunity to purchase on a future dip.