Telly
Thinks s/he gets paid by the post
- Joined
- Feb 22, 2003
- Messages
- 2,395
I've been thinking about this situation. I thought I knew the answer to the first part, but now I'm not so sure, maybe I'm missing something.
Let me create a scenario. Two people, "A" and "B", own the same number of shares in the "Early Retirement Mutual Fund" (ERMF). ERMF is an equity fund that has a moderate/high rate of dividends. Dividends are paid quarterly.
Persons A and B have both decided to start tapping their respective ERMF funds.
Person A - Switches their dividends to be taken as cash. Capital Gains continue to be reinvested. So every quarter, Person A gets a varying amount of cash.
Person B - Has a different approach. He leaves the dividends to be reinvested. And Capital Gains continue to be reinvested. But every quarter, right after the dividends are declared then reinvested, he sells a dollar amount of shares equal to what the total dividend amount for that quarter was. That is, if the amount of dividends declared and reinvested that quarter were $5,000, he sells $5,000 worth of shares.
So Persons A and B are both withdrawing the same amount of money. They follow their respective methods quarter after quarter for many years.
Question 1) Looking at both accounts years in the future, will the value of their ERMF accounts still be equal, Person A vs. Person B?
Question 2) If I now add a little real world, and say that the above scenario had both person's ERMF accounts as Taxable accounts, is there an advantage to A vs. B's methods, as far as minimizing overall Federal income tax?
(assume there is no difference in AGI between these two people, except for any created by their respective methods of tapping ERMF).
Question 3) If I said that the scenario above was actually in IRA's, and both Persons A and B were over 59 1/2 YOA when they started this, is there any advantage to A vs. B's methods to maximize income and minimize Fed taxes?
(once again, assume there is no difference in AGI between these two people, except for any created by their respective methods of tapping ERMF).
Let me create a scenario. Two people, "A" and "B", own the same number of shares in the "Early Retirement Mutual Fund" (ERMF). ERMF is an equity fund that has a moderate/high rate of dividends. Dividends are paid quarterly.
Persons A and B have both decided to start tapping their respective ERMF funds.
Person A - Switches their dividends to be taken as cash. Capital Gains continue to be reinvested. So every quarter, Person A gets a varying amount of cash.
Person B - Has a different approach. He leaves the dividends to be reinvested. And Capital Gains continue to be reinvested. But every quarter, right after the dividends are declared then reinvested, he sells a dollar amount of shares equal to what the total dividend amount for that quarter was. That is, if the amount of dividends declared and reinvested that quarter were $5,000, he sells $5,000 worth of shares.
So Persons A and B are both withdrawing the same amount of money. They follow their respective methods quarter after quarter for many years.
Question 1) Looking at both accounts years in the future, will the value of their ERMF accounts still be equal, Person A vs. Person B?
Question 2) If I now add a little real world, and say that the above scenario had both person's ERMF accounts as Taxable accounts, is there an advantage to A vs. B's methods, as far as minimizing overall Federal income tax?
(assume there is no difference in AGI between these two people, except for any created by their respective methods of tapping ERMF).
Question 3) If I said that the scenario above was actually in IRA's, and both Persons A and B were over 59 1/2 YOA when they started this, is there any advantage to A vs. B's methods to maximize income and minimize Fed taxes?
(once again, assume there is no difference in AGI between these two people, except for any created by their respective methods of tapping ERMF).