Capital gains and dividend distributions from taxable account

[trustee]

Is the general idea here to use these distributions from taxable accounts to fund a tax advantage account? I figure since you get taxed whether you reinvest or not, the smart thing to do would be to get these funds no matter how small into a tax advantaged vehicle...Maybe I answered me own question.

 

[scrabbler1]

I reinvest cap gain distributions in order to preserve the account's value. A cap gains distribution is accompanied by a drop in NAV so by reinvesting them in the same fund I end up with more shares at a lower price but the same total market value.

 

[W2R]

Like scrabbler1, I re-invest the capital gains from my taxable accounts.

Since I am retired, I take money from my taxable accounts for living expenses. This withdrawal comes from the dividends because, as you pointed out, they are already taxed whether I withdraw them or not. I re-invest any excess dividends.

 

[Animorph]

Doesn't matter where the money comes from, if you can put more money into a tax advantaged account it is probably a good idea. Sell some shares in the taxable account and use those funds. A Roth account would be nice.

 

[GrayHare]

Doesn't matter where the money comes from, if you can put more money into a tax advantaged account it is probably a good idea. Sell some shares in the taxable account and use those funds. A Roth account would be nice.

In some cases it does matter, for example, only *earned* income can be contributed into a traditional or Roth IRA.

 

[Animorph]

In some cases it does matter, for example, only *earned* income can be contributed into a traditional or Roth IRA.

I covered that, sort of, with the "if you can" hedge. I'm mainly stumped about what a tax advantaged contribution has to do with taxable dividends in the OP. Maybe you hit on part of the confusion here? Dividends aren't a substitute for earned income.

 

[pb4uski]

+1 as to being confused by the OP.

Since I'm currently living off of my taxable accounts, I take dividends and CG distributions in cash. It just reduces what I need to later sell out of my taxable accounts to fund our living expenses and it makes my taxes less complicated.

I also do Roth conversions and pay the tax from taxable account funds, but that is a separate issue from whether I take dividends and CG distributions in cash or reinvest them.

 

[W2R]

Yes, taking dividends and capital gains in cash helps when I rebalance, too. I do that during the first week of January every year. So, when I said I reinvest capital gains, I meant that I get them in cash and then reinvest them and any excess dividends (after my withdrawal) into my portfolio as a whole.

 

[kaneohe]

In some cases it does matter, for example, only *earned* income can be contributed into a traditional or Roth IRA.

This is probably nitpicking but I think you probably mean that you can only contribute to TIRA/RIRA if you have *earned* income. A person could use his earned income (paycheck) to pay the rent, buy food , etc. and use the fund distributions e.g. to fund the IRA. Money is money after all and there is that awful word fungible that some like to use.

 

[GrayHare]

A spouse's earned income qualifies too for IRA, though until the OP clarifies we're just guessing what details he meant.