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I just noticed that I'm receiving Dividends back into my cash account at my brokerage. I called and requested to have all future Dividends reinvested. My retirement accounts do this automatically so I made the mistake of assuming my non retirement brokerage account would do the same. My question is, what happens to the Dividends that I've already received from a Tax perspective? Is it too late to reinvest that money to avoid paying taxes at the end of the year?
Having your dividends stay in cash or reinvested has no impact on the tax situation
Really? Do you mean as long as I leave the money in the account or could I spend the Dividends as I please? or do you get taxed on Dividends in a non retirement account no matter what you do with it?
You owe tax on those dividends no matter what you choose to do with them. Only dividends earned in tax-advantaged retirement accounts are spared taxation.
which is why i try to avoid dividends as much as possible. i dont need any more tax obligations than i already have.
Exactly! In a taxable account, a "buy and die" strategy (no trading and no withdrawals) has two ways of generating taxable income: turnover and dividends. Turnover is minimized by holding index funds (or individual stocks). But there's not much that we can do about dividends in index funds. There was a thread recently about specialized funds that seek stocks that pay no dividend, specifically for tax reasons. But the conclusion, if memory serves, is that those funds tend to underperform mainstream indices
i just took a look at my ytd tax info, im pretty much all index etf's (some leveraged) at this point. my tax obligations are pretty minuscule and i am happy about it.
Really? Do you mean as long as I leave the money in the account or could I spend the Dividends as I please? or do you get taxed on Dividends in a non retirement account no matter what you do with it?
once you get the dividend it is taxable , what you do with it is up to you .
dividends really are a very tax inefficient way to get an income stream . you pay tax on the entire dividend . hypothetically if you pulled the same dollars from a portfolio based on appreciation you only get taxed on the gain portion not the entire amount .
Great info, thanks. So I guess the brokerage firm keeps track of all annual dividends and reports to me and the IRS at the end of the year. Are they taxed as regular income?
yes they keep track .as far as tax rate they are all different . some qualify 100% for capital gains rates others only partial .
funds have different rules too as far as whether there distributions are at capital gain rates or not . funds do not work off of a 1 year hold .
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