Pay Taxes and Reap Benefits
As I have said in previous posts about this type of investing activity, there are good reasons to move assets from a traditional IRA to a ROTH. The advantages can be at least four-fold. Today I moved 1,000 shares of Fidelity National Financial (ticker: FNF) from my IRA to my ROTH. The average cost of the shares is $46.01 and my total cost for the shares was $46,006.50. I purchased 800 shares in June 2021 and the last 200 shares last November. Because of my holdings, FNF has paid me $760 in dividends during 2021.
Advantage Number One is Income Taxes
When I am obligated to withdraw the government-mandated RMD (Required Minimum Distribution) from my IRA, I will be paying taxes. The larger the account balance, and the more it grows, the higher our taxes will be. I can manage our overall tax burden on an annual basis to keep income taxes reasonable. It often makes sense to pay the tax today, instead of waiting until I have to pay even more taxes as the result of taking my RMDs at age 72 and beyond. So I will be paying taxes on income of about $46,000. The actual amount will be determined when the market closes and the final price for FNF is determined. At this hour, FNF is trading just slightly above my cost basis. Therefore, my taxes can be calculated and paid as a part of my quarterly estimated taxes.
Advantage Number Two is Investment Appreciation
I believe FNF will continue to do well in the future. Therefore, if the price of the shares increases to $56 or so in the future, I can sell the shares for $56,000. There will be no taxes on my gain, and I can withdraw that amount without paying taxes. It really wasn’t that long ago that FNF was trading at $56 per share, but the current market turmoil has battered just about every investment.
Advantage Number Three is Tax-Free Dividends
Even if the shares do not grow in value, it is highly likely that FNF will continue to pay increasing dividends. This is because the dividend payout ratio of FNF is below 50%. It is currently around 19.75%. Furthermore, the 5-year dividend growth rate is 19.68%. In a world where inflation is growing for food, transportation, medical costs and just about everything else, having a growing tax-free income is very appealing. If I keep the shares, I can easily expect to receive $1,760 in tax-free income during 2022. In fact, one of the reasons I moved the shares today is that the first ex-dividend date for FNF is next week, March 16.
Advantage Number Four is Tax-Free Options Income
While the shares were in my IRA, I traded options twice during 2021. Because FNF only has monthly options, selling covered calls doesn’t result in a windfall of income. However, income is income, so having the options income in the ROTH is better than having that same income in the traditional IRA.
About Fidelity National Financial
FNF is not related to Fidelity Investments. Rather, Fidelity National Financial, Inc., together with its subsidiaries, provides various insurance products in the United States. The company operates through Title, F&G, and Corporate and Other segments. It offers title insurance, escrow, and other title related services, including trust activities, trustee sales guarantees, recordings and reconveyances, and home warranty insurance. The company also provides technology and transaction services to the real estate and mortgage industries; and mortgage transaction services, including title-related services and facilitation of production and management of mortgage loans. In addition, it offers annuity and life insurance products, such as deferred annuities that include fixed indexed, fixed rate, and immediate annuities, as well as indexed universal life insurance products. Further, the company engages in the real estate brokerage business. Fidelity National Financial, Inc. was founded in 1847 and is headquartered in Jacksonville, Florida.
Cindie and I own 1,100 shares of FNF as a long-term investment.