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Old 11-28-2014, 09:05 AM   #21
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Buffett does not like dividend because he does not want his shareholders (especially himself) to have their net worth cut by double taxation.

You and me can have tax free dividends all the way to about 84k a year. You do not have Buffet's problems since you will need about 3.5 million in equities just to generate that kind of dividend income.

It remains that he buys companies that pay and grow dividends.....

BTW I find this type of dividend income far safer than bond yield. One of the reasons is because it grows and does not get eroded by inflation.
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Old 11-28-2014, 10:25 AM   #22
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LOL! is right, in that avoiding unsolicited distributions is a better tax strategy.

If our retirement fund yields around 4% in distributions, that is about right for withdrawal and rebalancing, so tax-wise it's a wash.

But when distributions start creeping up above that 4% level, like they are this year, then we really do feel the tax bite! ouch!
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Old 11-28-2014, 04:42 PM   #23
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LOL! is right, in that avoiding unsolicited distributions is a better tax strategy.

If our retirement fund yields around 4% in distributions, that is about right for withdrawal and rebalancing, so tax-wise it's a wash.

But when distributions start creeping up above that 4% level, like they are this year, then we really do feel the tax bite! ouch!
I don't know any index funds that pay 4 % dividend. Very few companies do...those would certainly not make bulk of somebodies portfolio.

So you must be talking about something else than dividends.
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Old 11-28-2014, 05:18 PM   #24
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I don't have much experience investing in non tax deferred investments so maybe I just don't understand but why does it matter if you're paying more taxes if the final result is you have more money.
It's like farmers and crop yields. Big yields bad because prices fall. Poor yields bad because crop bushels fall. Life is hard, no matter what- but complaining sure is fun.

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Old 11-28-2014, 05:35 PM   #25
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I don't know any index funds that pay 4 % dividend. Very few companies do...those would certainly not make bulk of somebodies portfolio.

So you must be talking about something else than dividends.
I am talking about mutual fund distributions, but I'm not talking about index funds.
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Old 11-28-2014, 05:46 PM   #26
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I am talking about mutual fund distributions, but I'm not talking about index funds.
That is very different from 100% qualified dividends. The thread is about "loving dividend distribution"......

Those are tax free up to about 85k for married couple. Lot of people here will happily retire with inflation protected tax free income of 85k a year.

Mutual fund distribution can be ton of bond yield and short term capital gains distribution. I think of bond fund as paying "income" and not dividend. And it will be taxed as income.....
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Old 11-28-2014, 06:27 PM   #27
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My comment was in response to the posts about capital gains distributions and reducing capital gains distributions.
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Old 11-28-2014, 08:26 PM   #28
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Buffett does not like dividend because he does not want his shareholders (especially himself) to have their net worth cut by double taxation.
Buffett makes three arguments in his annual letter against dividends -- taxation is only the third. His primary argument is that the math of reinvesting favours no dividend payouts (people who need cash can sell appreciated shares instead).

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You and me can have tax free dividends all the way to about 84k a year. You do not have Buffet's problems since you will need about 3.5 million in equities just to generate that kind of dividend income.
I've never had tax free dividends in my entire life. While working, I was always in too high a bracket. However even in FIRE I'll have to pay state tax. I'd always prefer to keep control over taxes by not receiving a dividend (unless the company absolutely has no reinvestment prospects).

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It remains that he buys companies that pay and grow dividends.....
All else being held equal I'd prefer not to have dividends. But that's not always the case and dividends often come with companies that I want to own for other reasons (e.g. value)



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I don't know any index funds that pay 4 % dividend. Very few companies do...those would certainly not make bulk of somebodies portfolio.

So you must be talking about something else than dividends.
AudreyH1 clarified that she was discussing capital gains but there are some indexes popular with slice & dicers that are approaching 4%. E.g. international/value funds such as EFV (msci value), DLS (wisdomtree int small cap), VEA (vanguard ftse developed).
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Old 11-28-2014, 09:22 PM   #29
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Come on down to the 15% tax bracket with the rest of us and you'll like dividends a lot more.... they are wonderful tax-free income.

Did I mention that they are tax-free?
I enjoy watching them grow my IRA. The longer it sits there and grows, the more $ will be there when I need it.

Works well for me....but most of our cash is in IRA's.
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Old 11-29-2014, 12:01 AM   #30
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One of the reasons I love our Berkshire-Hathaway stock is that it doesn't pay dividends and generates a capital gain only when it's sold. Of course, it's gonna be a big-azz capital gain. In the beginning I'd bought it in the IRA because that's where I had the funds to buy it (this was when they had only A and B shares). I realized what a bad idea that was and as I added new money to the after-tax funds, I bought B-H in the after-tax account and sold it in the IRA.
+1

I like to think of BRK stock as a way to defer taxes, a person could if they had 2MM in cash, buy BRKA/BRKB stock and that 2MM would not generate any payable tax until sold even as it gained 15% a yr.
Unlike crazy mutual funds that you pay tax upon, yet they don't even send you a check for the amount.
Same amount in a mutual fund at 15% profit in a year would generate $300K in reportable capital gains.
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Old 11-29-2014, 05:10 AM   #31
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I've never had tax free dividends in my entire life. While working, I was always in too high a bracket. However even in FIRE I'll have to pay state tax. I'd always prefer to keep control over taxes by not receiving a dividend (unless the company absolutely has no reinvestment prospects).
Tax Calculator - Estimate Your Income Tax for 2014 - Free!

Yes saying that it is tax free is kinda "misleading" on my side. But if you had ONLY 90k of qualified dividends (no other income) and lived in Texas or Florida you would pay 0% income tax.

While staying within 90k range the more is generated by qualified dividends the lower taxes one pays.

But if your retirement income is 200k...you are loosing this benefit. Unless 110k of that is generated by municipal bonds. But even at 200k you pay way less from 200k in dividends then 200k in short term capital gains.

And those tax advantages are the reason I like income generated by qualified dividends. If I had to chose single best income stream it would be it. BTW Long Term Capital gains also have this tax advantage.....The calculator is fun tool to play with

http://www.nuveen.com/Home/Documents...x?fileId=49963
But the fact that companies that GROW earnings and dividends most of the time outperform non dividend payers makes me prefer growing dividend over long term capital gains.
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Old 11-29-2014, 07:18 AM   #32
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....But if your retirement income is 200k...you are loosing this benefit. Unless 110k of that is generated by municipal bonds. But even at 200k you pay way less from 200k in dividends then 200k in short term capital gains......
How many people or even couples will have 200k of retirement income?
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Old 11-29-2014, 09:25 AM   #33
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+1

I like to think of BRK stock as a way to defer taxes, a person could if they had 2MM in cash, buy BRKA/BRKB stock and that 2MM would not generate any payable tax until sold even as it gained 15% a yr.
Unlike crazy mutual funds that you pay tax upon, yet they don't even send you a check for the amount.
Same amount in a [crazy] mutual fund at 15% profit in a year [that stupidly cashed in that profit every year] would generate $300K in reportable capital gains.
Typical index funds are tax-efficient and do not stupidly realize all their unrealized gains each and every year. The tax drag on a decent index fund is something like 0.2% to 0.3% of value a year.

I am pretty sure that folks can easily avoid crazy mutual funds and taxes on them.
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Old 11-29-2014, 10:23 AM   #34
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Those of us with pensions, pay taxes on every dollar of dividends. Sounds like it is much better to retire just on investments alone!

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T

Those are tax free up to about 85k for married couple. Lot of people here will happily retire with inflation protected tax free income of 85k a year.

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Old 11-29-2014, 10:28 AM   #35
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Those of us with pensions, pay taxes on every dollar of dividends. Sounds like it is much better to retire just on investments alone!
Lets say 20k of your income were qualified dividends.

Try computing taxes while having those 20k as Bond yield instead of qualified dividends. I would be extremely surprised if you end up with identical tax bill.

Yea it is better That is why Mitt Romney pays less then 14% taxes on tens of millions of annual income.
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Old 11-29-2014, 10:47 AM   #36
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About 5800k of the over 7k is qualified dividends that I will get as distributions.Most of the 5800k is long term capital gain.Paying taxes on distributions has never been a problem for me.As the years pass and the amounts get higher maybe that will change.I do not know.But for now it is a good thing.
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Old 11-29-2014, 10:51 AM   #37
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You sound like you have an intrinsically sensible attitude toward money, which is part of your personality and will not change!

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About 5800k of the over 7k is qualified dividends that I will get as distributions.Most of the 5800k is long term capital gain.Paying taxes on distributions has never been a problem for me.As the years pass and the amounts get higher maybe that will change.I do not know.But for now it is a good thing.
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Old 11-29-2014, 11:26 AM   #38
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Last year's spending (beyond my pension) came to $97 less than my dividends, only about half of which were qualified. I re-invested all my capital gains distributions. I could probably be a lot smarter about my tax planning.

But gosh, my dividends + capital gains distributions came to many, many times my total (federal and state) tax bill for all my income, including pension and more. In retirement, my taxes have been so much lower than they were while working that honestly they are pathetic. So, I can still be pretty happy about my dividends even though my tax planning does need some work.

I know, I know, it doesn't take much to make me happy these days. Seeing money appear out of thin air does it for me, though.

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Old 11-29-2014, 11:51 AM   #39
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Since retiring I have been aggressively doing IRA to ROTH conversions (although still not quite as aggressive as i-ORP recommends). The ROTH is now very substantial and comprised of Wellesley & Wellington which kick out lots of tax free dividends.
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Old 11-29-2014, 12:02 PM   #40
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Since retiring I have been aggressively doing IRA to ROTH conversions (although still not quite as aggressive as i-ORP recommends). The ROTH is now very substantial and comprised of Wellesley & Wellington which kick out lots of tax free dividends.
That is another smart technique to minimize taxes.

Optimally one has equities and Municipal Bonds in taxable account generating qualified dividends and Bonds and REITs in Roth accounts .

One could construct very nice and sizable tax free income stream by combining both techniques.
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