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Old 10-09-2014, 01:40 PM   #21
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Originally Posted by FUEGO View Post
+1, this is exactly how I run my portfolio, too. Taxable accounts pay dividends into my cash pile. Deferred accounts reinvest automatically.
In accumulation phase: I take all deferred dividends and re-invest. I take most taxable dividends and re-invest except those that come from positions where I do not wish to increase my holding (an S&P 500 index fund with a higher ER than my TSM fund). I take those S&P dividends into checking, and then make a quarterly deposit into my other taxable account to purchase more TSM.

In effect, I reinvest all of it, just not automatically.
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Old 10-09-2014, 02:21 PM   #22
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Originally Posted by Kimo View Post

I am inclined to think those of us who like Santa to leave presents would also like CG's as cash . Please, just a joke, many of you who like Santa have everything reinvested.....
Now that you mention it, I do sort of look at the CG payments as surprise gifts - I don't count on them but when the savings account bounces high suddenly towards the end of the year, it's like getting a bonus. Some years the dividends and CGs plus DH's pension and SS are enough for us to live on, other years not. But it's sort of fun when I don't have to sell in January for the year's living expenses.
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Old 10-09-2014, 02:34 PM   #23
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MBAustin, I agree completely with everything you said!

Prior to starting this post I was having everything paid to me, now I think I will keep the dividends/interest coming in as a deposit but change the CG's to reinvest. I do like the idea of letting it grow a bit by doing that and I believe I can live on the remainder with the annuity payments also.

FWIW, the first financial planner I spoke to at Vanguard liked my idea of having everything paid to me (a few years ago). The VG planner I spoke to a few days ago suggested I just put what I need for the year in my bucket #1 and reinvest everything. That is why I started the post. All in all, I like both ideas and doing this actually lets me do both!

I am not knocking Vanguard, I have everything I own with them, it was more of a FYI.
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Old 10-09-2014, 02:57 PM   #24
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We are now just tinkering with taking the dividends from DWs IRA. I had started earlier in the year, taking a little each month then stopped after three months. Now I think we will wait until the beginning of next year. Rather than take a set amount each month, we will likely take them several times a year. Once we sell a property ot two, we won't need to touch the dividends at all.
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Old 10-10-2014, 12:12 PM   #25
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Even though I posted that I have dividends and capital gains distributions posted to my bank account, I'm still trying to get my head around this.

Assuming that both equal the amount I would need to withdraw from my taxable portfolio each year:

Reality of not reinvesting those proceeds:

1. I have to pay taxes on them whether they are reinvested or not
2. It's roughly the same $$ amount of shares I would have to sell anyway, so I've preserved the number of shares I have in my portfolio.
3. The number of shares in my portfolio never increases

Reality of reinvesting those proceeds:

1. I have to pay taxes on them whether they are reinvested or not
2. I incur small gains (or losses) on those reinvested proceeds
3. I increase the number of shares in my portfolio but ultimately have to sell shares in order to withdraw for the year.

Now I'm not sure which is best.
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Old 10-10-2014, 12:28 PM   #26
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Originally Posted by Looking4Ward View Post
Even though I posted that I have dividends and capital gains distributions posted to my bank account, I'm still trying to get my head around this.

Assuming that both equal the amount I would need to withdraw from my taxable portfolio each year:

Reality of not reinvesting those proceeds:

1. I have to pay taxes on them whether they are reinvested or not
2. It's roughly the same $$ amount of shares I would have to sell anyway, so I've preserved the number of shares I have in my portfolio.
3. The number of shares in my portfolio never increases

Reality of reinvesting those proceeds:

1. I have to pay taxes on them whether they are reinvested or not
2. I incur small gains (or losses) on those reinvested proceeds
3. I increase the number of shares in my portfolio but ultimately have to sell shares in order to withdraw for the year.

Now I'm not sure which is best.
When I posted this subject I had nearly the exact same thoughts. After reading them all I am going to do a combination of the two ideas, reinvest CG's and take everything else as income...
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Old 10-10-2014, 12:28 PM   #27
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Originally Posted by Looking4Ward View Post
Even though I posted that I have dividends and capital gains distributions posted to my bank account, I'm still trying to get my head around this.

Assuming that both equal the amount I would need to withdraw from my taxable portfolio each year:

Reality of not reinvesting those proceeds:

1. I have to pay taxes on them whether they are reinvested or not
2. It's roughly the same $$ amount of shares I would have to sell anyway, so I've preserved the number of shares I have in my portfolio.
3. The number of shares in my portfolio never increases

Reality of reinvesting those proceeds:

1. I have to pay taxes on them whether they are reinvested or not
2. I incur small gains (or losses) on those reinvested proceeds
3. I increase the number of shares in my portfolio but ultimately have to sell shares in order to withdraw for the year.

Now I'm not sure which is best.
It really is a 'six of one...' issue!
For me, there is an advantage in not having to make a decision on what shares and when to sell. Having he money already set aside just makes the withdrawal easier without the stress of wondering "is this a good time to sell?"
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Old 10-10-2014, 12:34 PM   #28
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Excellent point!
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Old 10-10-2014, 12:39 PM   #29
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When I posted this subject I had nearly the exact same thoughts. After reading them all I am going to do a combination of the two ideas, reinvest CG's and take everything else as income...
From what I wrote in my posts in this tread, this is basically what I do, too. I do, however, reinvest monthly dividends from my smaller bond funds because I there is no chance I would need them as cash to cover my monthly expenses. A few years ago, I did take some of them as cash but now because I am taking my larger, quarterly stock dividends as cash, that extra boost more than covers any monthly bumps in my budget. I then figure out how much from that quarterly cash inflow I can reinvest.

For a short time a few years ago, I did a dividend "sweep" by which I used the dividends (and CGs) from one fund within the same account to buy shares in another fund. Similarly, this can be used as a mild rebalancing move if the two funds involved are of different asset types.
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Old 10-10-2014, 01:33 PM   #30
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I am currently retired and reinvest in all my IRAs. Taxable accounts are not significant enough to matter for this issue. I generate the cash I need for withdrawal during annual rebalancing and set that money aside.

I don't promote this as better than taking the dividends/gains as cash during the year. My rationale: for me it is a straightforward method of extracting income in an equitable fashion from across my entire portfolio and maintaining my desired asset allocation in a single (though potentially large) step.

Half of my retirement portfolio is in TSP where you cannot take any dividends/gains as cash. Because of the limited options available in that program, I take a constant dollar amount each month. I rebalance TSP at the same time as I do my IRAs.

Interesting to see all the various approaches to this decision.
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Old 10-10-2014, 01:37 PM   #31
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I think it depends.

It depends on your asset allocation and whether it needs to change.
It depends on what you need from your portfolio each year to meet your budget.
It depends on how you want to do the withdrawals from accounts.

For me personally, I have all dividends, capital gains paid out and saved within each account. If large enough during the year, I may invest them in a short-term bond fund.

Once I determine my budget, I know how much as to come from my investments (tax-free, pre-tax, and post-tax).

Annually, I do an asset re-allocation that generates the cash I need. Using the cash in the various accounts helps in reallocating, AND in the final disbursement.

I will caution that re-allocating among several accounts can be a bit of a puzzle. Having cash in those accounts helps to solve the allocation/disbursement puzzle.

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Old 10-10-2014, 01:55 PM   #32
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I make it nice and simple.......I have all my taxable dividends and interest deposited into an interest bearing checking account. Every six months I look at the money in my account, if there is an excess and there usually is I rebalance my investment portfolio. And, I keep enough money in the checking account to pay taxes.

So, my Roth IRA remains untouched, I don't sell either bonds or stock, I rebalance every six months and I don't worry about taxes. Is this the smartest way to go? I don't know but I know it's the easiest, at least for me.
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Old 10-10-2014, 02:14 PM   #33
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Originally Posted by Kimo View Post
FWIW, the first financial planner I spoke to at Vanguard liked my idea of having everything paid to me (a few years ago). The VG planner I spoke to a few days ago suggested I just put what I need for the year in my bucket #1 and reinvest everything.
Funny enough, the Vanguard planner I spoke to recently suggested I switch from reinvesting dividend/CG distributions in my taxable account to having them paid out, now that I've RE and entered the distribution phase. Just goes to show that everyone's situation is different.
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Old 10-10-2014, 02:38 PM   #34
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We take dividends and CGs in cash. DW is still working OMY (or two). Our expenses are covered by her pay, my pension, rental income, and dividends from our taxable account (we reinvest in tax-deferred accounts). Yes, it's simple and easy. However, I have been thinking about reinvesting and doing less-frequent "opportunistic" withdrawals.

I'm also thinking about reducing our 5% cash allocation for same basic reason... to keep all money as productive as possible. With the large cash reserve, we don't need the dividends every month/quarter. We can just consume some of the reserve. Under our current method of taking dividends, the cash reserve never changes much. So again, I'm considering reinvesting and withdrawing less frequently, perhaps when technicals indicate a medium-term peak.

My gut says there's got to be an advantage to reinvesting. Taking dividends in cash is really just periodic/regular selling at whatever the price happens to be on the date of distribution. This strikes me as rather arbitrary, although maybe not so bad... a bit like like dollar-cost-averaging in reverse.

In any case, I haven't analyzed this question enough to even know what my rules might be for "opportunistic" withdrawals. I'd love to hear from others who have a system. I know that many people harvest cash as part of annual rebalancing. I've always thought of those as two separate processes. In addition, our taxable account is virtually 100% equities. So rebalancing is usually accomplished entirely in the tax-deferred accounts where there's a mix of stocks and bonds. But I'm still pretty new at this and keeping an open mind.

Anyway, for now, simple and easy wins.
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Old 10-10-2014, 02:47 PM   #35
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FWIW, I used to keep a 5% cash allocation also and at the beginning of this year I lowered it to 2.5% and, like you, it is just about the same today as it was in January....
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Old 10-10-2014, 02:49 PM   #36
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Taking dividends in cash is really just periodic/regular selling at whatever the price happens to be on the date of distribution. This strikes me as rather arbitrary, although maybe not so bad... a bit like like dollar-cost-averaging in reverse.
Is this accurate? My understanding is you're taxed on the dividend/CG distributions in any case. The other selling (and tax impact) is optional.
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Old 10-10-2014, 03:01 PM   #37
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I make it nice and simple.......I have all my taxable dividends and interest deposited into an interest bearing checking account. Every six months I look at the money in my account, if there is an excess and there usually is I rebalance my investment portfolio. And, I keep enough money in the checking account to pay taxes.

So, my Roth IRA remains untouched, I don't sell either bonds or stock, I rebalance every six months and I don't worry about taxes. Is this the smartest way to go? I don't know but I know it's the easiest, at least for me.
+1
I set up my taxable brokerage accounts for automatic monthly transfers of X dollars into checking account.

It is simple and I have predictable monthly check which I view same way I view pay check.
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Old 10-10-2014, 05:23 PM   #38
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Is this accurate? My understanding is you're taxed on the dividend/CG distributions in any case. The other selling (and tax impact) is optional.
Tax-wise you're right. Portfolio withdrawal-wise, I agree with Cobra9777. I have had funds return nearly a third of their share price in capital gains. You have no control over that, and it is not consistent year to year. Yeah, you have to pay some taxes on them. But it's not income like dividends. It's part of your principal. I don't think an income investor should be spending capital gains distributions.

On the other hand, if you're raising cash for expenses it doesn't matter how you do it as long as you keep your portfolio balanced and withdrawals within your planned limits. I take all distributions as cash and reinvest manually if they unbalance my portfolio. Mainly that avoids wash sale problems if I sell some shares at a loss near distribution time.
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Old 10-10-2014, 07:35 PM   #39
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Is this accurate? My understanding is you're taxed on the dividend/CG distributions in any case. The other selling (and tax impact) is optional.
My comment was entirely related to portfolio withdrawal timing, not taxes.
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Old 10-10-2014, 07:49 PM   #40
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I think it's basically a wash for those of us who need at least as much money as is generated by dividends and cap gains, except for 4 possible situations I can think of:

1) You may want to sell shares of funds for cash at a specific time rather than when the funds happen to generate divs and cap gains. Or as some has said, you may want to take a specific amount rather than however much is thrown in divs and CGs.

2) If you want to do some tax harvesting it may be better to select other funds or shares to sell.

3) To get your portfolio in balance with your AA goal you may want to sell from other funds, though a transfer between funds seems it would amount to the same thing. Instead of reinvesting fund A div/CGs and selling from fund B for cash, take fund A div/CGs as cash and sell fund B and buy into fund A. Same basic thing except for a bit of timing

4) If you are in a closed fund you may want to reinvest to let the fund grow, since you can't buy back in (or may be limited in how much you buy)

There may be other tangible reasons I can't think of. And if one or the other "feels" right, there's no reason not to do it that way unless one of the above reasons applies and is counter to how you feel.
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