Dividends/Capital Gains

[RE2Boys]

Once you are paid, the payments have a new name: money. Use that money as you would use any other money that you may have available.

All this angst is really based on mental accounting: https://en.wikipedia.org/wiki/Mental_accounting Though mental accounting can be useful, it is important to understand when you are doing it.

Sorry, this makes no sense at all.

Brain moving faster than typing. I meant to say that I don't, as a general rule, reinvest capital gains/dividends if a fund is in a taxable account, strictly to simplify tax reporting. Moot point in this thread after OP added reference to retirement accounts.

 

[bingybear]

Where did I mention taxes?

Intention: Income .

I don't recall you asking, but when people ask about the difference taxes often are important. As noted they don't matter in a TIRA.

To answer your clarified question, I expect my TIRA will be converted to Roth before I need anything from it. It is invested in a nice mix of investment types. So I use both types.

 

[pb4uski]

I guess that I don't see any advantage to withdrawing only dividends and/or dividends and capital gains distributions from tax-deferred accounts.... you're just play a head game.

Since any withdrawals... be they dividends, capital gains distributions or principal... are taxable as ordinary income, I reinvest all distributions and separately do withdrawals to the top of the 12% tax bracket since the tax on those withdrawals are relatively cheap compared to my expected 22% tax bracket later in life once SS starts and also relative to the 28% tax bracket that I was in when a lot of that money was deferred.

Whether the withdrawals are more or less than my dividends and capital gains doesn't matter. If the amount that I withdraw exceeds what I need for spending it is in my taxable online savings account and I make coresponding investment changes in my tax-deferred account to rebalance.

 

[scrabbler1]

Well....someone got it, and answered the question rather succinctly I might add. Let's all raise a hearty toast to Scrabbler1 !!

Apparently his Scrabble skills are of Ninja Like Quality and translate directly to his understanding of the subtleties of the English Language.

In the future I will refrain from such technical posts until everyone has had time to get their first few cups of coffee down...Perhaps myself included.

My reply, to which you praised (thank you!), I assumed you were referring to only taxable accounts, not 401ks/IRAs. In an (t)IRA, which I also have but can't yet access because I am too young (56, still three years away), the choice for now is to reinvest within the same fund or into another fund, not to take as cash. I reinvest in the same fund although I do some rebalancing from time to time (more often than in my taxable account), always a non-taxable event.

BTW I am a good Scrabble player even though I stopped playing in tourneys many years ago. That doesn't always translate into reading skills, just word knowledge, especially obscure words, and find those words.

 

[EarlyBirdly]

Analogous sample conversation:

" When you make a pepperoni pizza do you prefer to layer the cheese first and then pepperoni or, pepperoni first then layered with cheese? "

" I use a gluten free crust and make sure the tomatoes are fresh Marzano's. This then is baked at 462 degrees ( I never use centigrade) for 13 minutes. I use a GE Profile oven placed in my kitchen at a relative angle of 32 degrees as referenced to True North accounting for Magnetic Deviation. Additionally, I only use Sherwin-Williams paint for exterior colors and Behr on all interior surfaces. "

 

[EarlyBirdly]

Somewhat analogous answer :


" It doesn't matter, you're going to eat the damn pizza anyway and it tastes the same either way!"

 

[pb4uski]

^^^^ I think he's got it!

 

[EarlyBirdly]

^^^ WHEW!^^^


Tired now. So tired...


Think I'll go try and bench that 350 now. Should be easier.



Embrace The Madness,

B1-RD

 

[donheff]

EarlyBird - if you are so great with reading comprehension you should have been able to read between the lines. Your question confused everybody because none of them ever ask it. That in itself answers your question - for most of us it doesn't matter since whatever you take out is income (from a tax perspective). I suspect most of us leave the funds set to reinvest dividends and then sell shares to complete our RMDs and maintain the desired AA.

 

[RunningBum]

The quality of the replies is directly related to the quality of the question. A stealth change to the question which overhauls the meaning does not help either.

 

[EarlyBirdly]

Never said I had great reading comprehension. Scrabble does.

No "stealth change". Original post mentioned 401K/IRA and never asked a thing about taxes.

Ya'll have a good day !

Pretty sure I've learned all I need to know after this posting....

 

[LarryMelman]

I hope you learned that folks here are very supportive and helpful and knowledgeable, if you ask a properly and correctly worded question. And that it's really bad form to passive-aggressively bash people who try to help you but politely point out that you may not completely understand what you are asking.

I was going to offer my advice to help clarify your question, but honestly it's not worth the bother.

 

[jebmke]

as far as I'm concerned, taxes are the only consideration

 

[EarlyBirdly]

Oh, I understand exactly what I was asking. As well, I never ask questions unless I already have the answers.

When the same question, worded almost identically, was asked in a different venue the answers were quite clear and concise.

Sorry for any confusion and, Good Luck to All.

 

[audreyh1]

What is the prevailing attitude here on income strategy within a 401k/IRA as regards Dividends/Capital Gains distributions ?

Do you prefer to take one, the other, or both ?

Discuss.

E.B.

Are you basing your withdrawals from your 401K/IRA on the distributions paid by the mutual funds?

If you are an income only or dividend investor, then only withdraw the dividend distributions and reinvest the capital gains distributions.

If you are a total return investor, you'll probably take some fixed % or amount from your 401K/IRA, in which case you can sell whichever asset class(es) has appreciated the most to rebalance to your target AA. Whether or not you reinvest distributions doesn't really matter tax wise.

Since it's a tax deferred account there is no tax strategy difference between the two. Taxes are only a function of the amount withdrawn.

 

[EarlyBirdly]

She gets it. Exactly.

Thanks Audrey

 

[LarryMelman]

She gets it. Exactly.

Thanks Audrey

Please. Stop.

 

[kgtest]

Please. Stop.

+1

 

[donheff]

Oh, I understand exactly what I was asking. As well, I never ask questions unless I already have the answers.

When the same question, worded almost identically, was asked in a different venue the answers were quite clear and concise.

Sorry for any confusion and, Good Luck to All.

So you are just a troll screwing with us? How about moving permanently to the different venue you mentioned.

 

[MuirWannabe]

My goodness. Strangest thread I’ve seen in a while. OP wants help. Then insults almost everyone making good faith efforts to understand and offer help. OP must be a blast to hang around. Not.

 

[Henry Lili]

In retirement accounts I reinvest, DRIP style, both dividends and capital gains. In taxable, I use dividends to pay my bills. As for realized capital gains in taxable accounts , I don't spend them.

 

[jebmke]

My goodness. Strangest thread I’ve seen in a while. OP wants help. Then insults almost everyone making good faith efforts to understand and offer help. OP must be a blast to hang around. Not.

OP said that never asks questions already answered. I tend to agree with others that it is a troll post.

 

[rayvt]

When I am no longer drawing down taxable accounts, and would like to be generating income from an IRA, I am looking at taking distributions from Dividends and reinvesting the Capital Gains.

Why? There's nothing magical about dividends. It's all just money that comes from your account, whether it's from dividends or from selling a few shares.
A dividend is a dis-investment from capital just like selling shares is. Except that the amount of cash is decided by someone else, not you, and the timing is decided by someone else, not you.

If you want more cash than the dividends you have to sell some shares anyway.....so the dividend didn't save you from any effort.

We just let everything get automatically reinvested, and when it comes time to withdraw some cash we just sell some shares from whichever asset allocation is higher than the targeted allocation, which effectuates a rebalance and a withdrawal all in one.

 

[thepalmersinking]

Why? There's nothing magical about dividends. It's all just money that comes from your account, whether it's from dividends or from selling a few shares.
A dividend is a dis-investment from capital just like selling shares is. Except that the amount of cash is decided by someone else, not you, and the timing is decided by someone else, not you.

If you want more cash than the dividends you have to sell some shares anyway.....so the dividend didn't save you from any effort.

We just let everything get automatically reinvested, and when it comes time to withdraw some cash we just sell some shares from whichever asset allocation is higher than the targeted allocation, which effectuates a rebalance and a withdrawal all in one.

Is that really true? If you are using the bucket strategy and keep a cash balance that gets replenished by the cash from dividends and instead reinvest dividends into a fund that goes down 30% then that 100% cash that you would have gotten now becomes 70%. I would have to liquidate more dividend producing shares to get the same amount of cash. That would be the same scenario regardless of taxable, tax deferred or tax free? Right?

 

[donheff]

Is that really true? If you are using the bucket strategy and keep a cash balance that gets replenished by the cash from dividends and instead reinvest dividends into a fund that goes down 30% then that 100% cash that you would have gotten now becomes 70%. I would have to liquidate more dividend producing shares to get the same amount of cash. That would be the same scenario regardless of taxable, tax deferred or tax free? Right?

The reverse is also true. If you leave dividends in cash for six months and the market rises you lose that growth. Maybe some of the spread sheet gurus have run the numbers. I suspect it doesn't much matter which way you go. Having a cash buffer large enough to weather the steepest part of a typical downturn probably makes it even more immaterial.