Dividends/Capital Gains

[EarlyBirdly]

What is the prevailing attitude here on income strategy within a 401k/IRA as regards Dividends/Capital Gains distributions ?

Do you prefer to take one, the other, or both ?

Discuss.

E.B.

 

[RE2Boys]

Income strategy. Being retired, minimize W2 income of course.

I accept both dividends, cap gains, along with SS and pension.

Do not reinvest div/cap gains in any funds within a taxable accounts.

Reinvest div/cap gains if the funds are in a retirement account.

I don't need the funds at this time and not yet subject to RMDs

Were you looking for something else?? Investing for div or investing for cap gains??

 

[ERD50]

What is the prevailing attitude here on income strategy within a 401k/IRA as regards Dividends/Capital Gains distributions ?

Do you prefer to take one, the other, or both ?

Discuss.

E.B.

What is the alternative to "taking them"? To not take them?

I don't understand. If a company issues a dividend or a cap gain, of course I take it. Why wouldn't I, it is money. And it will be taxed.

What are you asking?

-ERD50

 

[scrabbler1]

You will find a variety of methods, EB. I have used several variations over the years, including the last 11 in my ER. I have one big bond fund whose monthly dividends I take as cash to pay my bills. Since 2014, I have been using a stock fund's quarterly dividends to supplement the bond fund's dividends, as they roughly coincide with my lumpier expenses (which have risen over the years).


As for cap gains, I have done different things with them. I usually reinvest them, as they are erratic in size and frequency. This works out okay as long as they aren't so big that I can't cover any income taxes due on them using my regular dividends. But if they are very large, like in 2017 and 2018 (especially), then I have to take them in cash so I can use some of it to pay the taxes. I also had other purposes for the large late-December CG distribution, which in 2018 represented about half of my total income, so I took it in cash and used some of the rest of it to do a little rebalancing and replenishing of a "slush fund."

 

[pb4uski]

I'm not really sure what your question is or your reason for asking it.... please elaborate.

What is the prevailing attitude here on income strategy within a 401k/IRA as regards Dividends/Capital Gains distributions ? ....

Some prefer income, some prefer total return... I'm in the total return camp.

... Do you prefer to take one, the other, or both ?
...

Yes.

My tIRA holds my fixed income allocation (mostly CDs and preferred stocks) and then some equities. The equities in my IRA are index funds.

 

[EarlyBirdly]

What is the alternative to "taking them"? To not take them?

-ERD50

Reinvesting.... or taking ( key word ) Distributions to generate monthly/annual income.

 

[bingybear]

What is the prevailing attitude here on income strategy within a 401k/IRA as regards Dividends/Capital Gains distributions ?

Do you prefer to take one, the other, or both ?

Discuss.

E.B.

I have to agree the question is a little odd. Since this is in a 401k/ira there is no tax differences... you just get taxed when any assets are removed from the account.

Are you asking if people invest for CG (growth) or dividends? Or are you asking people reinvest the dividends?

I do treat TIRA differently that RIRA as to what I invest in.

A little more info on your intention may help.

 

[CardsFan]

In the after tax accounts, we take div/int/cap gain as cash, using it as part of our spend (along with selling some bonds that have no cap gains)

In tIRA, it can vary. Currently taking all distributions in cash and then buying CD's, primarily to offset the bonds being sold in after tax account (and maintain AA), but also to provide a source for RMD's starting in 6 years. If/when we get a major downturn in the market, I will likely flip the switch the other way and re-invest, again to maintain AA.

In the RothIRA accounts, everything is re-invested. This is money that we don't think we will ever tap for ourselves. It will be inherited by our son at some point.

 

[ncbill]

Total return.

Using a dividend strategy forces one to take dividend income...even when one might not want to realize income at that time (e.g. increased taxes, increased mAGI negatively affecting eligibility for ACA subsidies)

 

[EarlyBirdly]

I will elaborate so as to make a simple question much more complicated...


Currently, and for the next several years, I reinvest both Dividends and Capital gains.

When I am no longer drawing down taxable accounts, and would like to be generating income from an IRA, I am looking at taking distributions from Dividends and reinvesting the Capital Gains.

Just wondering how those who are ahead of me in the Retirement Game have preferred to handle these aspects of income generation and why.

Not really something I need to think about for a few years but, I like to plan ahead.

Thanks.

 

[bingybear]

Total return.

Using a dividend strategy forces one to take dividend income...even when one might not want to realize income at that time (e.g. increased taxes, increased mAGI negatively affecting eligibility for ACA subsidies)

The OP asked about "in a IRA/401k". Taxes and MAGI would not be in play until one takes the $ out of the IRA/401k.

 

[EarlyBirdly]

You will find a variety of methods, EB. I have used several variations over the years, .... I have one big bond fund whose monthly dividends I take as cash to pay my bills.


As for cap gains, I have done different things with them. I usually reinvest them, as they are erratic in size and frequency. This works out okay as long as they aren't so big that I can't cover any income taxes due on them using my regular dividends. "

BINGO. That's about what I was looking for.

Capital Gains are not a big deal as regards taxes as these funds are in an IRA's/401k's.

 

[Bruno]

In the after tax accounts, we take div/int/cap gain as cash, using it as part of our spend (along with selling some bonds that have no cap gains)

When you take the div/int/cap gains in cash are they taxed different? I see a lot of ppl doing that and was not sure why?

Thanks..

 

[EarlyBirdly]

The OP asked about "in a IRA/401k". Taxes and MAGI would not be in play until one takes the $ out of the IRA/401k.

Awarded 100 pts. for reading comprehension skills !


Also correctly stated as regards taxes ( even though I never mentioned taxes initially ). As well, there are no Capital Gains Taxes on distributions from Tax Deferred accounts such as an 401k/IRA. ( Which is why that was not part of my original question. )

 

[VanWinkle]

I will elaborate so as to make a simple question much more complicated...


Currently, and for the next several years, I reinvest both Dividends and Capital gains.

When I am no longer drawing down taxable accounts, and would like to be generating income from an IRA, I am looking at taking distributions from Dividends and reinvesting the Capital gains.

Just wondering how those who are ahead of me in the Retirement Game have preferred to handle these aspects of income generation and why.

Not really something I need to think about for a few years but, I like to plan ahead.

Thanks.

Your own preference is what counts here. Any money that comes out of the 401K/IRA will be taxable. You can take dividends and interest as they occur and top it off with share sales if needed. You can also reinvest dividends and interest and satisfy your draw with sales of shares only. If you take a draw monthly it may be easier to take dividends and interest as they occur. If you do a one time draw per year, you may want the compounding of re-investing dividends and interest. Then just sell shares once a year for your income.

I will likely draw monthly when I start taking from my IRA.

VW

 

[EarlyBirdly]

I have to agree the question is a little odd. Since this is in a 401k/ira there is no tax differences... you just get taxed when any assets are removed from the account.

Are you asking if people invest for CG (growth) or dividends? Or are you asking people reinvest the dividends?

I do treat TIRA differently that RIRA as to what I invest in.

A little more info on your intention may help.

Where did I mention taxes?

Intention: Income .

 

[ERD50]

I will elaborate so as to make a simple question much more complicated...


Currently, and for the next several years, I reinvest both Dividends and Capital gains.

When I am no longer drawing down taxable accounts, and would like to be generating income from an IRA, I am looking at taking distributions from Dividends and reinvesting the Capital gains.

Just wondering how those who are ahead of me in the Retirement Game have preferred to handle these aspects of income generation and why.

Not really something I need to think about for a few years but, I like to plan ahead.

Thanks.

As mentioned below, it really makes no difference in an IRA.

In a 401K/tIRA, withdrawals are taxed, not divs/cap gains. Might as well re-invest in either case, though it really wouldn't make much difference if you are withdrawing that same year, but why not keep the money working for you?

The only possible issue would be you could technically crate a wash sale if you sold at a loss in your taxable, and re-purchased the same entity in your 401k/tIRA with a reinvestment within 30 (31?) days. The odds of this are rather slim, the effects likely small, and I don't think the IRS tracks this. And it's easy to use something similar, but not the same ticker, which definitely won't trigger any question at this time (maybe sometime in the future, someone will test the IRS definition of "substantially identical ").

-ERD50

 

[RE2Boys]

fyi everyone, the OP added the reference (via edit ) to IRA/401k after several folks had already replied, me included.
Since any withdrawals from these accounts are taxed the same, I would think the primary driver whether to re-invest in a fund, pick a different fund, pick a different investment vehicle would be to maintain desired asset allocation. Investing dividends differently from cap gains may or may not achieve this desired outcome.

 

[CardsFan]

When you take the div/int/cap gains in cash are they taxed different? I see a lot of ppl doing that and was not sure why?

Thanks..

Taxed the same whether you re-invest or spend them. Since we need to draw from this account for spending money, this is just one way to do it.

 

[ERD50]

Where did I mention taxes?

Intention: Income .

If you don't want to consider taxes in this, there's really no point in the discussion, taxes are a consideration.

You can ignore them if you want, but it won't help you in your planning. And the IRS will definitely be considering them, they will receive a 1099, informing them of your withdrawal.

What are you looking for? This is very confusing.

-ERD50

 

[Rianne]

Currently, and for the next several years, I reinvest both Dividends and Capital gains.
Thanks.

+1, for the next several years. DH still has $42K income from LLC from consulting < 20 hours/week. We have to remain under ACA MAGI for the next 3 years. We pay SS and Medicare taxes from LLC. We use cash and laddered CD's to supplement income. Will not touch portfolio for the next 3 years (at least) b/c SS and pension will kick in at 65 and that's plenty to cover our LBYM. RMD will be the hurdle to avoid major tax hit.

 

[ERD50]

fyi everyone, the OP added the reference (via edit ) to IRA/401k after several folks had already replied, me included. ...

Thanks for that. I looked back at my first response and thought I missed that (still on my first cup), but that explains it.

Geez, OP, you are really making this difficult for people trying to help you. Because of your stealth edit, many of the replies are off base in some ways.

-ERD50

 

[RE2Boys]

Where did I mention taxes?

Intention: Income .

Keep the funds in the IRA/401K working for you as long as possible. Only withdraw when needed to maintain your desired portfolio withdrawal rate. Or to fund Roth conversions if that will help with the potential tax torpedo.

 

[OldShooter]

Once you are paid, the payments have a new name: money. Use that money as you would use any other money that you may have available.

All this angst is really based on mental accounting: https://en.wikipedia.org/wiki/Mental_accounting Though mental accounting can be useful, it is important to understand when you are doing it.

Do not reinvest div/cap gains in any funds within a taxable accounts.

Sorry, this makes no sense at all.

 

[EarlyBirdly]

Well....someone got it, and answered the question rather succinctly I might add. Let's all raise a hearty toast to Scrabbler1 !!

Apparently his Scrabble skills are of Ninja Like Quality and translate directly to his understanding of the subtleties of the English Language.

In the future I will refrain from such technical posts until everyone has had time to get their first few cups of coffee down...Perhaps myself included.