Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
How bad is it (tax-wise) to hold dividend payers in a taxable acct?
Old 04-24-2006, 12:53 PM   #1
Thinks s/he gets paid by the post
 
Join Date: Aug 2004
Location: Houston
Posts: 1,435
How bad is it (tax-wise) to hold dividend payers in a taxable acct?

I have some extra money that I'd like to put into VG's equity income fund, VEIPX. However, I don't have any more room in my Roth, and a dividend-focused fund isn't offered in my 401k. Should I bite the bullet and hold it in a taxable account?

My research indicates that holding a large-cap, dividend focused fund in a taxable account is not as bad as holding a small cap fund (or worse, an internationa equity or taxable bond fund). But is this right?
__________________

__________________
soupcxan is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Re: How bad is it (tax-wise) to hold dividend payers in a taxable acct?
Old 04-24-2006, 01:17 PM   #2
Thinks s/he gets paid by the post
grumpy's Avatar
 
Join Date: Jul 2004
Posts: 1,321
Re: How bad is it (tax-wise) to hold dividend payers in a taxable acct?

That is certainly true of a taxable bond fund. The interest earned in a bond fund is taxed at your marginal tax rate. Dividend distributions from equity funds are taxed at max. 15%. I have no qualms about paying 15% tax now rather than an unknown rate at some future date when I withdraw from a tax deferred account. I hold a large slug of dividend paying stocks in a taxable account originally acquired thru DRIPs with savings that exceeded the maxed out contributions to tax deferred vehicles.

Grumpy
__________________

__________________
...you can check out any time you like, but you can never leave...
grumpy is offline   Reply With Quote
Re: How bad is it (tax-wise) to hold dividend payers in a taxable acct?
Old 04-24-2006, 01:21 PM   #3
Thinks s/he gets paid by the post
 
Join Date: Apr 2006
Posts: 1,487
Re: How bad is it (tax-wise) to hold dividend payers in a taxable acct?

Quote:
I have no qualms about paying 15% tax now rather than an unknown rate at some future date when I withdraw from a tax deferred account.
ditto
__________________
d is offline   Reply With Quote
Re: How bad is it (tax-wise) to hold dividend payers in a taxable acct?
Old 04-24-2006, 01:36 PM   #4
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
brewer12345's Avatar
 
Join Date: Mar 2003
Posts: 16,391
Re: How bad is it (tax-wise) to hold dividend payers in a taxable acct?

What is the yield on the fund? Maybe 3%? So you might pay 15% of 3% of your investment in taxes? Under 1/2% a year doesn't sound too bad to me.

I generally don't have any qualms about getting qualified dividends in taxable accounts.
__________________
"There are three kinds of men. The one that learns by reading. The few who learn by observation. The rest have to pee on the electric fence for themselves."



- Will Rogers
brewer12345 is offline   Reply With Quote
Re: How bad is it (tax-wise) to hold dividend payers in a taxable acct?
Old 04-24-2006, 02:14 PM   #5
Thinks s/he gets paid by the post
maddythebeagle's Avatar
 
Join Date: Jun 2005
Posts: 2,450
Re: How bad is it (tax-wise) to hold dividend payers in a taxable acct?

Quote:
My research indicates that holding a large-cap, dividend focused fund in a taxable account is not as bad as holding a small cap fund (or worse, an internationa equity or taxable bond fund). But is this right?
Are you figuring less turnover on a large cap div. fund? where is CFB? on vacation? He would know more on this since he sounds to have a major wad in taxable index fund accounts. I know that he moved away from taxable bond funds.
__________________
- Hurry! to the cliffs of insanity!
maddythebeagle is offline   Reply With Quote
Re: How bad is it (tax-wise) to hold dividend payers in a taxable acct?
Old 04-24-2006, 02:45 PM   #6
Thinks s/he gets paid by the post
 
Join Date: Aug 2004
Location: Houston
Posts: 1,435
Re: How bad is it (tax-wise) to hold dividend payers in a taxable acct?

Looking at the distributions per share for VEIPX over the last year:

Dividends: $0.71
ST cap gains: $0.113
LT cap gains: $0.941

And from this page at VG's site:

http://flagship3.vanguard.com/VGApp/...nalContent.jsp

it looks like 100% of the dividends from the fund in 2005 were "qualified" so they would be taxed at the 15% rate. The LT capital gains would also be at 15%. So the only portion of distributions from the fund that would be taxed at my full marginal rate is the $0.113 of ST capital gains, correct?

The next question...is it foolish to only hold dividend focused stocks as the equity portion of your portfolio? Obviously this goes against MPt and the conventional wisdom, and I'll miss out on mid-, small-, and international stocks...but I just don't like investments that don't produce current income. Reminds me too much of the "greater fool" theory.
__________________
soupcxan is offline   Reply With Quote
Re: How bad is it (tax-wise) to hold dividend payers in a taxable acct?
Old 04-24-2006, 03:11 PM   #7
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
brewer12345's Avatar
 
Join Date: Mar 2003
Posts: 16,391
Re: How bad is it (tax-wise) to hold dividend payers in a taxable acct?

Quote:
Originally Posted by soupcxan
The next question...is it foolish to only hold dividend focused stocks as the equity portion of your portfolio? Obviously this goes against MPt and the conventional wisdom, and I'll miss out on mid-, small-, and international stocks...but I just don't like investments that don't produce current income. Reminds me too much of the "greater fool" theory.
Is this meant to be an investment koan (what is the sound of one equity risk premium clapping)?

You have to decide what you believe and act accordingly. I am sufficiently convinced that there are sizable holes in MPT, but I still think that a diversified, low cost portfolio is best for a core portfolio. I don't "do" tech.

What do you believe? If you are not comfy with investments that don't produce income, then don't buy them. Just be aware of the implications of your choices. For example, dividend funds often have very disproportionate weights devoted to banks, insurers, and utilities because these industries tend to have high payouts. Is that a bet you want to make? I've no idea f it is a good one or not, but make sure you are aware of it when you make your choices.
__________________
"There are three kinds of men. The one that learns by reading. The few who learn by observation. The rest have to pee on the electric fence for themselves."



- Will Rogers
brewer12345 is offline   Reply With Quote
Re: How bad is it (tax-wise) to hold dividend payers in a taxable acct?
Old 04-24-2006, 05:27 PM   #8
Recycles dryer sheets
 
Join Date: Jan 2004
Posts: 147
Re: How bad is it (tax-wise) to hold dividend payers in a taxable acct?

Soup,
I enjoy your posts and their replies, because you and I have similar goals and risk tolerance.

My only concern with this strategy is if tax rates go up (which many believe is almost a certainty) then taxes will eat up any advantages you might gain. The qualified dividend rate of 15% is a recent advantage that investors may not enjoy for very long.

-Jay

__________________
Enjoy your own life without comparing it with that of another. ~ Marquis de Condorcet
fire5soon is offline   Reply With Quote
Re: How bad is it (tax-wise) to hold dividend payers in a taxable acct?
Old 04-24-2006, 05:52 PM   #9
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jul 2005
Posts: 5,408
Re: How bad is it (tax-wise) to hold dividend payers in a taxable acct?

i agree 15% now is better than rolling the dice later..
__________________

__________________
mathjak107 is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Rebalancing taxable vs. tax-exempt/deferred accounts AV8 FIRE and Money 22 02-08-2007 08:02 AM
Hold regular bond in 401k or muni in taxable? soupcxan FIRE and Money 9 04-07-2005 05:54 PM
What is taxable income? mickeyd Other topics 21 01-29-2005 04:02 PM
ETF in taxable account (tax efficiency) fire5soon FIRE and Money 0 09-17-2004 12:55 PM
Taxable vs. Tax Deferred Accounts Theo FIRE and Money 1 06-03-2004 07:42 PM

 

 
All times are GMT -6. The time now is 08:31 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.