Dividends when you sell or move a mutual fund/ETF?

[BarbWire]

This is an embarrassingly basic set of question.

CONTEXT: I am getting ready to move a brokerage account from Vanguard to Fidelity in November, and it contains some Vanguard mutual funds which cannot move, so I am selling them, such as VBIAX. It also contains BND which I will sell to harvest capital losses to offset the cap gains in VBIAX.

Other holdings -- VTI, VEU, and MMM for example -- will be moved as is to Fidelity.

1). Since I won't hold those mutual funds on the December record date, I won't get the Q4 dividend -- correct? When I buy new mutual funds or ETFs (as I will ) at Fidelity in November, I will hold those on the December record date...so I will get the "whole" dividend for Q4? Dividends are based on how many shares you own on the record date, not how long you have owned them?

2). for the VTI, VEU, etc that I move from Vanguard to Fidelity, what happens to the Q4 dividends? Are they paid at Fidelity for the entire Q4 because that's where they will be on the record date?


Thanks

 

[YellowSubmarine]

The dividends will stay at current brokerage and only paid if held to the ex-D date. If the equity is recorded at the new brokerage before the ex-D then you receive the dividend accordingly, i.e. new brokerage. I am not certain about money market funds, but I assume the same applies. There is no partial/split dividend per location.

 

[BarbWire]

The dividends will stay at current brokerage and only paid if held to the ex-D date. If the equity is recorded at the new brokerage before the ex-D then you receive the dividend accordingly, i.e. new brokerage. I am not certain about money market funds, but I assume the same applies. There is no partial/split dividend per location.

To clarify, ex-D is the recording date? or a different date?

So if the ETF (the whole brokerage fund) is moved to Fidelity in mid-November, and if the ETF is recorded as being in Fidelity by the record date in December I will get the dividend paid into my Fidelity brokerage account?

Similarly, if at Fidelity I purchase new ETFs in early December, I will get a December dividend if they have been recorded prior to the Record date?

The old Vanguard brokerage account will be closed by the beginning of December, as I will have transferred it/its contents to Fidelity.

I have a sinking feeling that losing the Q4 dividend will be the price I pay for getting out of Vanguard.

 

[COcheesehead]

The dividend is already in the NAV. So anything transferred prior to the ex date already includes the dividend. Anything purchased prior to the ex date also includes the dividend.
Money market funds accrue daily and are paid monthly, but if you transfer you’ll be paid up to the date of sale.

 

[PaunchyPirate]

It’s important to also know that, if dividends and/or interest is paid while your transfer is “in process”, you will still get those dividends/interest. It will likely go to the original broker. But, It will show up at your second broker in a secondary sweep process a week or two later. Always give a couple weeks for all sweep transactions to finish and fully deplete the original account. Assuming you are completely transferring the entire account holdings.

 

[YellowSubmarine]

To clarify, ex-D is the recording date? or a different date?

So if the ETF (the whole brokerage fund) is moved to Fidelity in mid-November, and if the ETF is recorded as being in Fidelity by the record date in December I will get the dividend paid into my Fidelity brokerage account?

Similarly, if at Fidelity I purchase new ETFs in early December, I will get a December dividend if they have been recorded prior to the Record date?

The old Vanguard brokerage account will be closed by the beginning of December, as I will have transferred it/its contents to Fidelity.

I have a sinking feeling that losing the Q4 dividend will be the price I pay for getting out of Vanguard.

I don't think you will lose any dividend. The ex -dividend is the start of a new time line. The trading day before the ex closes out that payment at the end of trading. Hence wherever that position was held will determine where the dividend goes (broker). And as mentioned by another poster, there is often a secondary seep that accommodates the late arriving dividends.

 

[RetiredHappy]

It’s important to also know that, if dividends and/or interest is paid while your transfer is “in process”, you will still get those dividends/interest. It will likely go to the original broker. But, It will show up at your second broker in a secondary sweep process a week or two later. Always give a couple weeks for all sweep transactions to finish and fully deplete the original account. Assuming you are completely transferring the entire account holdings.

+1

 

[BarbWire]

It’s important to also know that, if dividends and/or interest is paid while your transfer is “in process”, you will still get those dividends/interest. It will likely go to the original broker. But, It will show up at your second broker in a secondary sweep process a week or two later. Always give a couple weeks for all sweep transactions to finish and fully deplete the original account. Assuming you are completely transferring the entire account holdings.

Right ... I am completely transferring the account holdings and shutting the Vanguard account.

So even if the VG account is closed, there may be a "secondary sweep" a week or two later? That's good.

I hope that if I start the account transfer on Nov 14, it will be complete by the end of November (though there is a holiday in there). I don't want to start it before Nov 14 because I will be out of the country.

 

[BarbWire]

THANKS, ALL! I think I understand and shouldn't lose much if anything.

But the important thing is that, even if I do lose dividends, Vanguard will be done and dusted by the end of 2025.

 

[RetiredHappy]

THANKS, ALL! I think I understand and shouldn't lose much if anything.

But the important thing is that, even if I do lose dividends, Vanguard will be done and dusted by the end of 2025.

You won't lose your dividends, and yes, there will be another sweep happening a week or so later. If it doesn't happen, simply ask the receiving custodian to force a pull from Vanguard.

 

[NomDeER]

The dividend is already in the NAV. So anything transferred prior to the ex date already includes the dividend. Anything purchased prior to the ex date also includes the dividend.

I haven't paid close attention before. Does this mean that, the day after the dividends are paid, the NAV drops accordingly?

 

[COcheesehead]

I haven't paid close attention before. Does this mean that, the day after the dividends are paid, the NAV drops accordingly?

On the ex date, the asset drops equal to the dividend. You get it back on the pay date.

 

[pb4uski]

^^^ Yes, on the ex date the fund records a dividend liability, which reduces the NAV. When the dividend is paid it doesn't affect the NAV because cash goes down for the amount of the dividend paid but the dividend liability goes down as well and offsets the decrease in cash.

 

[NomDeER]

^^^ Yes, on the ex date the fund records a dividend liability, which reduces the NAV. When the dividend is paid it doesn't affect the NAV because cash goes down for the amount of the dividend paid but the dividend liability goes down as well and offsets the decrease in cash.

So, I have a mutual fund that I don't want to sell this year because there are signfiicant unrealized gains and there will be tax consequences in the 15% tax bracket. If I sell it at the beginning of next year (when I can get a 0% tax bracket), the NAV will have just decreased because they pay out dividends at the end of the year?

 

[pb4uski]

Yes, the NAV is reduced on the ex date which is actually before the dividends are paid but in the case that you describe the NAV will be lower by the amount of the dividend.

 

[COcheesehead]

So, I have a mutual fund that I don't want to sell this year because there are signfiicant unrealized gains and there will be tax consequences in the 15% tax bracket. If I sell it at the beginning of next year (when I can get a 0% tax bracket), the NAV will have just decreased because they pay out dividends at the end of the year?

The NAV will be down, but you’ll get the dividend which makes you whole and if you reinvest it, your cost basis will be adjusted downward.

 

[NomDeER]

The NAV will be down, but you’ll get the dividend which makes you whole and if you reinvest it, your cost basis will be adjusted downward.

If I reinvest it, why would the tax basis be adjusted downward? Wouldn't it go up since I'm investing the dividends at a higher cost?

Could I reinvest the dividend at the end of the year, and a week later sell the entire fund with no adverse consequences?

 

[38Chevy454]

If I reinvest it, why would the tax basis be adjusted downward? Wouldn't it go up since I'm investing the dividends at a higher cost?

Could I reinvest the dividend at the end of the year, and a week later sell the entire fund with no adverse consequences?

You are forgetting that the dividend is taxable, which make up the difference in the cap gains value. Same amount of money, just two different piles of it.

 

[ychuck46]

I have a sinking feeling that losing the Q4 dividend will be the price I pay for getting out of Vanguard.

Both firms are fine companies but I am curious - why the desire to leave Vanguard? I have most of my assets at Vanguard but do have some Fidelity ETFs in my last employer's 401K.

 

[COcheesehead]

If I reinvest it, why would the tax basis be adjusted downward? Wouldn't it go up since I'm investing the dividends at a higher cost?

Could I reinvest the dividend at the end of the year, and a week later sell the entire fund with no adverse consequences?

Look at your own accounts with reinvested dividends it will make more sense.
Yes, you can sell. Adverse consequences can mean many things. I am not sure what you are asking.

 

[NomDeER]

You are forgetting that the dividend is taxable, which make up the difference in the cap gains value. Same amount of money, just two different piles of it.

I am not forgetting that and have no intention of buying any more shares. I just don't think my average cost basis would go down. I bought my shares 20-30 years ago, when the price was much, much lower. So, even though the price will drop after the dividend is paid, that new price will be significantly higher than what I have paid in the past. So, if I then bought more, my average cost basis actually would be higher than it is now. There just wouldn't be much point in doing this.

ETA: I realize now that we're talking about two different things. I'm talking about the average tax basis, which is what is going to be the primary driver of my taxes in this situation.

 

[COcheesehead]

I am not forgetting that and have no intention of buying any more shares. I just don't think my average cost basis would go down. I bought my shares 20-30 years ago, when the price was much, much lower. So, even though the price will drop after the dividend is paid, that new price will be significantly higher than what I have paid in the past. So, if I then bought more, my average cost basis actually would be higher than it is now. There just wouldn't be much point in doing this.

ETA: I realize now that we're talking about two different things. I'm talking about the average tax basis, which is what is going to be the primary driver of my taxes in this situation.

Your capital gains will go down I guess is a better way to say it.

 

[NomDeER]

Your capital gains will go down I guess is a better way to say it.

Thanks! That was what I was thinking and hoping would happen. I still will have to pay the tax on the dividends and capital gains that are distributed in December, but my thought was that I would at least have lower unrealized capital gains as a result and would have an easier time fitting that into my 0% bracket if I sell it all in January.

 

[TheWizard]

Thanks! That was what I was thinking and hoping would happen. I still will have to pay the tax on the dividends and capital gains that are distributed in December, but my thought was that I would at least have lower unrealized capital gains as a result and would have an easier time fitting that into my 0% bracket if I sell it all in January.

It seems that it takes a while sometimes for newbies to understand that Capital Gains Distributions in taxable accounts are not a good thing.
Once they understand that, an easy first step to take is to avoid reinvesting dividends into the same managed fund, but rather, invest dividends and new money into index funds, such as VOO, VTI, VGT, QQQ which pay no CGDs.

Now you're still left with the original shares of the managed funds which keep pumping out CGDs most years, so you have to decide how much of those shares to sell each year based on the realized gains that you will incur.

Good luck with this problem...

 

[NomDeER]

It seems that it takes a while sometimes for newbies to understand that Capital Gains Distributions in taxable accounts are not a good thing.
Once they understand that, an easy first step to take is to avoid reinvesting dividends into the same managed fund, but rather, invest dividends and new money into index funds, such as VOO, VTI, VGT, QQQ which pay no CGDs.

I stopped reinvesting in this fund many, many years ago. (At this point, I don't re-invest any of my distributions even though most of my taxable account is in index funds. I used distributions to build up a little cash/CD/bond buffer to reduce SORR after ER and I am now using current distributions for some of my living expenses in ER. This has given me a little more room to convert in a low tax bracket as I haven't had to withdraw quite as much.)

The primary capital gains issue I have isn't with distributions; it's with unrealized gains because the value of each share has gone up so much. My fund with the most unrealized capital gains (about 80% of the total value) is an index fund that distributes almost no capital gains and very modest dividends. These unrealized gains are a good problem to have because it means that my investment has done well. But, I will need to pay taxes on a lot of it when I sell.

The nice thing about having most of your capital gains coming from appreciation is that you have more control over when you get capital gains. For me, that means I'm waiting until next tax year to sell and can put it in the 0% tax bracket.