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Dividends - Reinvest or transfer to a Savings Account
Old 06-19-2019, 12:39 PM   #1
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Dividends - Reinvest or transfer to a Savings Account

I am 63 & will start withdrawals from the Vanguard Portfolio in a few years after first spending from the Cash/CDs.

So far I have been reinvesting all the dividends in the Vanguard Taxable Accounts, I see some Forum members getting the dividends transferred to their bank accounts.

Apart from the need to spend the dividends, are there other reasons to get the dividends transferred to the bank ??

Please help me understand.

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Old 06-19-2019, 12:51 PM   #2
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I collect all dividends and capital gains distributions in cash - not reinvesting. But I don't transfer anything until the beginning of the next year when I make my annual withdrawal.

But until I was retired and needed funds, I reinvested everything automatically.
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Old 06-19-2019, 12:53 PM   #3
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Qualified dividends are tax favored income, so I like to spend them first.
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Old 06-19-2019, 12:56 PM   #4
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Think of a dividend as money going into your pocket. What would you do with that money? If reinvesting it in the same investment is your choice, reinvesting automatically is a quick, simple way to do it.

For those of us in draw-down mode, many of us choose to spend that money instead, which enables us to hold onto other investments. This way we're not, for example, paying tax on the dividend, but reinvesting that money and selling something else and paying an additional tax on the capital gain.

And if we decide this is the investment we'd sell from, decide whether you want to take short-term risk reinvesting until you need the money, or if you just want to keep the money in a safer place.

It can also be a good way to rebalance. You take the cash from the dividend, and invest the money wherever you are underweight.
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Old 06-19-2019, 01:11 PM   #5
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Think of a dividend as money going into your pocket. What would you do with that money? If reinvesting it in the same investment is your choice, reinvesting automatically is a quick, simple way to do it.

For those of us in draw-down mode, many of us choose to spend that money instead, which enables us to hold onto other investments. This way we're not, for example, paying tax on the dividend, but reinvesting that money and selling something else and paying an additional tax on the capital gain.

And if we decide this is the investment we'd sell from, decide whether you want to take short-term risk reinvesting until you need the money, or if you just want to keep the money in a safer place.

It can also be a good way to rebalance. You take the cash from the dividend, and invest the money wherever you are underweight.
This. Everything RB just said.
+1
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Old 06-19-2019, 01:31 PM   #6
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Thanks for explaining clearly in simple terms for me to understand -

In my case, as I will not be using the dividends at least for a few years, it is better to just let them get reinvested for now.

When I need the funds for expenses, I spend the dividends first before withdrawing more taxable money from the portfolio.

Thanks
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Old 06-19-2019, 01:51 PM   #7
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I am in the same situation and prefer to take dividends in cash.... it reduces any sales that I make to rebalance at year end to replenish cash to my 5% target (it goes down over the year as the result of withdrawals for living expenses)... I don't have a bunch of pesky small lots to deal with... most importantly, I don't have to worry about an automatic reinvestment triggering a wash sale.

For me it is just easier and simpler to take dividends in cash.
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Old 06-19-2019, 02:06 PM   #8
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Thanks pb4uski, I understand it better now.

I had not thought of the wash sale issue.

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Dividends - Reinvest or transfer to a Savings Account
Old 06-19-2019, 04:00 PM   #9
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Dividends - Reinvest or transfer to a Savings Account

Quote:
Originally Posted by audreyh1 View Post
I collect all dividends and capital gains distributions in cash - not reinvesting. But I don't transfer anything until the beginning of the next year when I make my annual withdrawal.

But until I was retired and needed funds, I reinvested everything automatically.


+1. We always reinvested divys and CGs in all accounts and continue to do so in taxable accounts, but once we hit RMD age DH and I changed our reinvestment strategy to accumulate divys and CGs in a high yield prime reserve fund within our IRAs to partially meet the RMD requirement which along with a bond ladder, fulfills our annual RMD withdrawals in December.
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Old 06-19-2019, 11:11 PM   #10
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Qualified dividends are tax favored income, so I like to spend them first.
How do you know if they are qualified?
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Old 06-20-2019, 05:16 AM   #11
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I have a pretty good idea from fund history how much of my dividends are qualified and how much are not, and I'll find out at the end of the year what the actuals are.

The odd thing about that statement is, it's not like you can say "I need some spending money, I'll just take me some qualified dividends." You're going to get the dividends whether you want them or not, and whether you spend or reinvest them. Now you've got cash. I like to spend cash because it doesn't cause any extra taxable events.
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Old 06-20-2019, 05:47 AM   #12
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Originally Posted by audreyh1 View Post
I collect all dividends and capital gains distributions in cash - not reinvesting. But I don't transfer anything until the beginning of the next year when I make my annual withdrawal.

But until I was retired and needed funds, I reinvested everything automatically.

+1
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Old 06-20-2019, 08:50 AM   #13
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This topic is raised often - a search may be useful.

In a taxable account, we don't reinvest for 2 reasons: 1) to avoid wash sales if we want to tax loss harvest and 2) so we can control how those proceeds are re-invested.
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Old 06-20-2019, 09:24 AM   #14
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This topic is raised often - a search may be useful.

In a taxable account, we don't reinvest for 2 reasons: 1) to avoid wash sales if we want to tax loss harvest and 2) so we can control how those proceeds are re-invested.

If you reinvest them in a taxable account, and they make more dividends and CG, then aren't you basically having to pay taxes twice on the same money ? Why not push those dividends into a ROTH ? (or maybe you don't have a ROTH available)
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Old 06-20-2019, 09:28 AM   #15
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If you reinvest them in a taxable account, and they make more dividends and CG, then aren't you basically having to pay taxes twice on the same money ?
No. You only ever pay taxes on gains/dividends. When you reinvest, those proceeds become part of the basis.

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Why not push those dividends into a ROTH ?
That's certainly an option. We already max out our Roths, so for mental accounting purposes, we do.

Money is fungible.
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Old 06-20-2019, 09:32 AM   #16
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If you reinvest them in a taxable account, and they make more dividends and CG, then aren't you basically having to pay taxes twice on the same money ? Why not push those dividends into a ROTH ? (or maybe you don't have a ROTH available)
No, they aren't taxed twice.

If I have $100K, and it makes $2K in dividends, I pay taxes on that $2K. If I reinvest that $2K in the same fund, or elsewhere (doesn't matter), and it makes $40, I'm paying taxes on that new $40. I'm not paying taxes on the $2K a second time.

As far as the Roth goes, if a Roth is an option, you should probably be investing in it if you can regardless of whether you get dividends or not. Remember what I said earlier. Dividends just become money in your account. You can do whatever you want with that money. It doesn't matter if it came from dividends, interest, wages, whatever.
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Old 06-20-2019, 09:33 AM   #17
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^^^ No, you are not paying taxes twice on the same money... you are paying tax on future earnings from having invested the dividend... no different from any other investment decision. Also, many here manage their income to be in the 0% capital gains tax bracket so we are not paying taxes on them at all!

You can't just push them into a Roth willy-nilly... you have to have earned income in order to make Roth contributions and even then there are limits. I'm retired and have no earned income so I can't make Roth contributions.
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Old 06-20-2019, 09:43 AM   #18
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Got it - Thanks for clarifying.
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Old 06-20-2019, 09:48 AM   #19
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Qualified dividends are tax favored income, so I like to spend them first.
not sure I understand this..........your taxes will be the same whether you spend them or not.
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Old 06-20-2019, 09:52 AM   #20
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I collect all dividends and capital gains distributions in cash - not reinvesting. But I don't transfer anything until the beginning of the next year when I make my annual withdrawal.

But until I was retired and needed funds, I reinvested everything automatically.
+3

I take my dividends in cash. They just sit at Vanguard in Money Market until the first week in January, when I transfer what I need for the following year to my checking account. Then I rebalance right after doing that and any remaining dividends are reinvested in that process.

Before I retired, I relied on my job for spending money, not dividends. I reinvested them to grow my retirement nest egg.
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