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Old 12-14-2015, 12:09 PM   #41
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Originally Posted by RunningBum View Post
Reinvesting dividends is no different than taking the cash and immediately rebuying, only it is done a day or two more quickly if you do it automatically. There is no tax advantage to reinvesting. You report the dividend income no matter what, at 0% or 15% depending on your bracket. Whether you reinvest has no bearing on the taxes.

If you want to rebuy what you're getting dividends on, reinvesting is fine. If you want the flexibility to invest in whatever you want, or spend that cash and hold other investments, don't reinvest. I like the flexibility. If I really want more of the fund that gave dividends, I can rebalance.

It really doesn't matter that much. If you reinvest but decide that's not what you really wanted to do, you can quickly sell (with SpecID basis) and probably have very little short term gain or less.

I just prefer to keep it simple. I need a certain amount of cash throughout the year. I can get much of it with the dividends. Then I look at how I want my investments to be, and rebalance if needed.

I don't quite get the last sentence in the OP's post. Were short term bonds actually the best investment this year?
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Old 12-14-2015, 12:10 PM   #42
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Originally Posted by Quantum Sufficit View Post
technically though (and the reason I questioned taking the dividends in cash in the first place) is you are NOT LEAVING YOUR STOCK ALONE.

The nav drops by the dividend distribution right? If you take those SHARES as cash, you have just liquidated some stock investment. In other words, if the dividend for the S&P is about 2%, by taking those dividends in cash, you are liquidating 2% of your stock holdings.
For those of us in the withdrawal stage, it is simply one of several choices of where to 'harvest' our portfolio.
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Old 12-14-2015, 01:05 PM   #43
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For those of us in the withdrawal stage, it is simply one of several choices of where to 'harvest' our portfolio.
Exactly. Even after taking the dividends I need to sell some shares as well.
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Old 12-14-2015, 01:37 PM   #44
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technically though (and the reason I questioned taking the dividends in cash in the first place) is you are NOT LEAVING YOUR STOCK ALONE.

The nav drops by the dividend distribution right? If you take those SHARES as cash, you have just liquidated some stock investment. In other words, if the dividend for the S&P is about 2%, by taking those dividends in cash, you are liquidating 2% of your stock holdings.
You're wrong (technically that is). If you take dividends in cash you are leaving your stock alone since you have the same number of shares before and after.

If you take dividends in cash you are not liquidating (you have the same number of shares)... you are just electing not to buy more shares.

The NAV drops whether you take cash or reinvest. If everyone took cash then the fund would have assets that are lower by the amount of dividends paid but the number of shares outstanding would be the same so the NAV drops. If everyone reinvested then the funds assets would be unchanged but the number of shares outstanding would be higher and the NAV drops. And anything in-between.
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Old 12-14-2015, 01:47 PM   #45
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For those of us in the withdrawal stage, it is simply one of several choices of where to 'harvest' our portfolio.
Yes.

Although there is one exception to just generic harvesting of money to be blown on household expenses. Craft beers purchased with dividend money always taste the best! Who knew? When I buy them with dividend money instead of SS money or DW's pension money, they always taste emmmm, emmmm good!

When my JNJ stock pooped out a $375 dividend recently, I rushed to Sal's Liquor Emporium and bought everything I needed to restock both my own booze supply and also my son's (where I've been known to mooch a beer to two). I put a little round sticker on each bottle so I know they're special. Bought with dividend bux, they'll be extra tasty!
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Old 12-14-2015, 02:06 PM   #46
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When I was working I reinvested. Once I retired I take them in cash.. in effect the reduce my withdrawals since what we need exceeds our dividends.
And even more important if you're trying to max out ACA subsidies, because the less you have to W/D the less MAGI you have to report. Dividends count as income no matter what for MAGI purposes, so if you want subsidies take as much as you need for expenses as cash.
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Old 12-14-2015, 02:16 PM   #47
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I do both. Dividends from my TSM go to my checking account. If I do not spend them, I transfer them to my Ally online account until needed in the future. Dividends from my STB fund are reinvested in hopes of taking advantage of the 2.6 year Duration.
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Old 12-14-2015, 03:18 PM   #48
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Exactly. Even after taking the dividends I need to sell some shares as well.
The distributions are usually more than sufficient to cover my annual withdrawal, plus a little for rebalancing. I may have to sell a few shares to do a full rebalance though.

In some years the best performing funds pay the highest distributions, so I end up amazingly close to my target allocation after distributions anyway.

But other years (like this one) in which nothing has appreciated, the distributions are all over the map and I will probably have to make several adjustments to rebalance.
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Old 12-14-2015, 03:31 PM   #49
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The distributions are usually more than sufficient to cover my annual withdrawal, plus a little for rebalancing. I may have to sell a few shares to do a full rebalance though.
I'm hoping we'll be in this situation ongoing as we have enough cash on hand for 2016's travel expenses, then the following year I start a DB pension from a firm I used to work for and DW starts collecting her SS.
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Old 12-14-2015, 03:35 PM   #50
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You're wrong (technically that is). If you take dividends in cash you are leaving your stock alone since you have the same number of shares before and after.

If you take dividends in cash you are not liquidating (you have the same number of shares)... you are just electing not to buy more shares.

The NAV drops whether you take cash or reinvest. If everyone took cash then the fund would have assets that are lower by the amount of dividends paid but the number of shares outstanding would be the same so the NAV drops. If everyone reinvested then the funds assets would be unchanged but the number of shares outstanding would be higher and the NAV drops. And anything in-between.
if you take the dividends and do not reinvest them the dollars you have compounding for you is reduced for the start of the next quarter when the opening bell rings .

what ever your investment dollars were the night before the reset on the price , they would be less if you pocket the dividend and the same if you reinvested it .the dollars compounding is what matters , number of shares that make up that value is a moot point .

all compounding is on dollars invested , always .
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Old 12-14-2015, 03:37 PM   #51
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Yikes, sorry to hear that (I am not sure how mine will be dealt with - US citizen in Canada for the first full year next year) - I've been told I will be taxed whichever is higher...

Do you know how Roth IRA is treated in Canada? (I hope they recognize it that it is after-tax contribution but I am getting the feeling they will tax the withdrawal somehow...)
Your Roth withdrawals will be tax free in Canada. But note the bit I underlined about contributions after you moved to Canada.

https://www.irs.gov/pub/irs-pdf/p597.pdf

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Roth IRAs.
A distribution from a Roth IRA
is exempt from Canadian tax to the extent it
would be exempt from U.S. tax if paid to a U.S.
resident. In addition, you may elect to defer any
tax in Canada on income accrued within the
Roth IRA but not distributed by the Roth IRA.
However, you cannot defer tax on any accruals
due to contributions made after you become a
Canadian resident
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Old 12-14-2015, 03:40 PM   #52
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I'm hoping we'll be in this situation ongoing as we have enough cash on hand for 2016's travel expenses, then the following year I start a DB pension from a firm I used to work for and DW starts collecting her SS.
Of course - someone could easily point out that my situation is not as tax efficient as having less in distributions than we need for withdrawal. And they would be right. Having to sell a few shares to complete a withdrawal, and selectively trimming to rebalance, is the most tax efficient way to handle it.
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Old 12-14-2015, 03:45 PM   #53
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if you take the dividends and do not reinvest them the dollars you have compounding for you is reduced for the start of the next quarter when the opening bell rings .
We're not talking about removing the dollars from the portfolio. Rather, we're talking about taking divs in cash and either holding them in cash or reinvesting them in another opportunity. If the div dollars are taken as spendable income but this results in not selling something else in the portfolio, this amounts to the same thing.

The result of taking divs in cash and either reinvesting them in an alternative investment, or not selling another investment for living expenses and spending the divs instead, will depend of the relative performance of the div producing investment vs the other investment.
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Old 12-14-2015, 03:48 PM   #54
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Of course - someone could easily point out that my situation is not as tax efficient as having less in distributions than we need for withdrawal. And they would be right. Having to sell a few shares to complete a withdrawal, and selectively trimming to rebalance, is the most tax efficient way to handle it.
Definitely a first world problem, I expect you don't stress out too much over the issue
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Old 12-14-2015, 03:54 PM   #55
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We're not talking about removing the dollars from the portfolio. Rather, we're talking about taking divs in cash and either holding them in cash or reinvesting them in another opportunity. If the div dollars are taken as spendable income but this results in not selling something else in the portfolio, this amounts to the same thing.

The result of taking divs in cash and either reinvesting them in an alternative investment, or not selling another investment for living expenses and spending the divs instead, will depend of the relative performance of the div producing investment vs the other investment.
yes if you are trading in like kind then it doesn't matter . but if you are just taking the dollars in dividends out so you do not have to liquidate cash or bonds which have less growth ability then in effect you are reducing allocations to equity's since you will then have less dollars in the investment .

dollars in the portfolio may be he same but you would have less dollars in that equity investment compounding if you didn't replace it with another equity investment .


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Old 12-14-2015, 03:55 PM   #56
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Definitely a first world problem, I expect you don't stress out too much over the issue
Well - in the last two years mutual fund distributions have been too "generous". There was a big jump in distributions from 2013 to 2014, and 2015 is coming in about the same as 2014. So our taxes took quite a jump.

It's our fault for owning so many active mutual funds. If a fund pays out what I consider to be an "out sized" distribution, I don't reinvest it so the fund shrinks in favor of one that is more tax efficient.

But that is a very, very slow process.
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Old 12-14-2015, 03:57 PM   #57
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look at the bright side . if you sell or make changes down the road at least you paid taxes on some of the gains .

having decades of pent up taxable gains in an index fund can be very painful to deal with .
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Old 12-14-2015, 04:13 PM   #58
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dollars in the portfolio may be he same but you would have less dollars in that equity investment compounding if you didn't replace it with another equity investment .


.
OK. We can just agree to disagree then. I prefer to take divs in cash and reinvestment them where I think they have the best opportunity for growth. You seem to be stuck with the concept of always having a fund reinvest in its own shares, whether the future of that fund is bright or not at that particular time.
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Old 12-14-2015, 04:18 PM   #59
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not what i said at all . i said if you take the money and put it in like kind which means another growth vehicle then it is the same type of asset . but if you are taking the dividends instead of using cash or bonds for the income then you are decreasing your allocation to a growth vehicle .
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Old 12-14-2015, 04:23 PM   #60
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Everybody has 2 investing lives. W*rking and investing, vs FIRED and spending. In my first life, I reinvested all my dividends. In my much better 2nd life, I take all my dividends and buy what ever the hell I want!!!
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