Stop reinvest dividends on taxable?

[badatmath]

I am 99% sure I have seen advice here not to reinvest dividends in taxable when no longer working.

I am being laid off and thinking it would give me an perhaps an extra $4K per year income if I took them instead.

Any disadvantages to this?

 

[euro]

I am 99% sure I have seen advice here not to reinvest dividends in taxable when no longer working.

I am being laid off and thinking it would give me an perhaps an extra $4K per year income if I took them instead.

Any disadvantages to this?

I quit reinvesting at retirement but mainly because I was tired of keeping track of it all. Back in the 90-ies, I had DRIP accounts for about 50 stocks and kept track with Quicken. However, over time, I got disenchanted with Quicken, so when I dropped it, I also quit re-investing dividends.

 

[badatmath]

Oh well I have exactly 1 account . . .

Just trying to figure out how to live without 401k for awhile.

 

[OldShooter]

I wouldn't do it for the same reason @euro states: Too much complexity. Lots of tiny positions, each with a different cost basis, will be a pain when/if you want to sell part of the position.

Re "extra" $4k income, the debate periodically rages here, but bottom line is it is not really "extra." Good video here: French on Dividends: https://famafrench.dimensional.com/videos/homemade-dividends.aspx

 

[badatmath]

Thanks OldShooter. So much for that plan. I may have to go find a job. . . . IDK

 

[mrfeh]

I see no point in reinvesting distributions in a taxable account whether working or not.

 

[mrfeh]

Thanks OldShooter. So much for that plan. I may have to go find a job. . . . IDK

Yes, definitely do not consider it "extra" or "free". Is is simply part of your portfolio's return.

 

[madman]

I had same issue with a lot of small positions that you have to track. Now I have them all go to cash. Much easier to manage.

 

[COcheesehead]

The record keeping aspect doesn’t make sense to me if you use something like TurboTax. Brokerages like Fidelity let you chose specific lots so you can also be tax efficient as well if you want to sell.

Keep in mind dividends are not truly income, but a taxation event where a portion of your holding is a forced sale so you can be taxed on it. A dividend is already reflected in your account value. So it’s not “extra” income.

 

[badatmath]

Truth is I do not really understand this stupid fund and kind of went to get rid of it. But I thought well at least I could stop buying more. And even if I did get rid of it I'm not really bright enough to put it elsewhere.

 

[PaunchyPirate]

If you find that you need to pull from your investments to pay your bills, then the first move in that direction might as well be taking the dividends as cash and spending that. It’s the same as doing a withdrawal from that account.

I am not currently withdrawing from my investments. So I automatically reinvest them in my IRA accounts. I do not have them reinvested in my taxable account. Instead, I manually invest them in whatever investment is the most out of line in my desired asset allocation. Sometimes that is back into the investment they came from. Other times it is not.

When I need to pull from my investments again, I will start having the distributions sent to my checking account.

 

[COcheesehead]

Truth is I do not really understand this stupid fund and kind of went to get rid of it. But I thought well at least I could stop buying more. And even if I did get rid of it I'm not really bright enough to put it elsewhere.

What’s the fund?

 

[arbeadub]

My reason for not reinvesting div is having a wash sale occur if I sell all the position. I live and learn.

 

[COcheesehead]

My reason for not reinvesting div is having a wash sale occur if I sell all the position. I live and learn.

It would just be a wash on the lots that have a loss purchased within the 60 day window, not the whole position. No loss, no wash.

 

[38Chevy454]

The other thing is you pay taxes on dividends in taxable account, whether you reinvest or not. So might as well just consider the dividends as part of your income stream once you are retired. The dividends already increase your taxable income, so might as well just take them in cash. At least that is my $.02

 

[COcheesehead]

The other thing is you pay taxes on dividends in taxable account, whether you reinvest or not. So might as well just consider the dividends as part of your income stream once you are retired. The dividends already increase your taxable income, so might as well just take them in cash. At least that is my $.02

A married, filing jointly couple, can receive up to $83,350 in qualified dividends and have them taxed at the 0% rate.

 

[38Chevy454]

A married, filing jointly couple, can receive up to $83,350 in qualified dividends and have them taxed at the 0% rate.

Good point, however with Roth conversions and other income, they are taxable to me and I forget about the non tax limits. I do DRIP on my pretax accounts.

 

[RobbieB]

Shortly after I retired I started auto transferring dividends into my checking account. Yeah, income is needed.

 

[TheWizard]

My reason for not reinvesting div is having a wash sale occur if I sell all the position. I live and learn.

Basically correct, especially recently with a lot of TLH opportunities.
Best not to reinvest dividends in any of your accounts depending on similarity to you taxable account holdings...

 

[Graybeard]

This topic confuses me. I always have reinvested dividends and capital gains in taxable, IRA and Roth accounts. I do not need the money for expenses because I almost always have money left over from my pension and SS every month. By reinvesting, it grows my shares. The only reason I would have to not reinvest would be to TLH. I can see taking them as cash if you do withdrawals for monthly living expenses but if you don't need the money and you are not going to TLH (I have about 3 years of losses to work off starting with the 2022 tax year) then why not just reinvest them?

 

[TheWizard]

A married, filing jointly couple, can receive up to $83,350 in qualified dividends and have them taxed at the 0% rate.

Well of course, that depends entirely on your OTHER income, such as pensions, SS, and RMDs...

 

[Al18]

For 2023, if you are Married filing jointlly, Up to $89,250 in qualified dividends is taxed at 0%.

I see no reason not to collect those dividends. The IRS has required brokers to report stock purchases since 2011 and mutual funds, ETF and dividends since 2012. This reporting makes it simple to import this information into your tax program.

 

[COcheesehead]

This topic confuses me. I always have reinvested dividends and capital gains in taxable, IRA and Roth accounts. I do not need the money for expenses because I almost always have money left over from my pension and SS every month. By reinvesting, it grows my shares. The only reason I would have to not reinvest would be to TLH. I can see taking them as cash if you do withdrawals for monthly living expenses but if you don't need the money and you are not going to TLH (I have about 3 years of losses to work off starting with the 2022 tax year) then why not just reinvest them?

I agree.

 

[PaunchyPirate]

This topic confuses me. I always have reinvested dividends and capital gains in taxable, IRA and Roth accounts. I do not need the money for expenses because I almost always have money left over from my pension and SS every month. By reinvesting, it grows my shares. The only reason I would have to not reinvest would be to TLH. I can see taking them as cash if you do withdrawals for monthly living expenses but if you don't need the money and you are not going to TLH (I have about 3 years of losses to work off starting with the 2022 tax year) then why not just reinvest them?

In this situation, about the only reason to not reinvest that I can come up with is to facilitate tweaking your desired asset allocation throughout the year by redirecting the income into the asset category that needs it to stay balanced. If you have room in your IRAs to do that rebalancing with no tax effect, that’s great. But for someone like me, I often need to do rebalancing in my taxable account, where I may not want to sell something just to rebalance due to capital gains.

 

[SJhawkins]

I dont auto reinvest in taxable, will admit I just get lazy and dont reinvest when I should, end of the year for the most part. Then rebalace as best we can between all accounts.

When work stops it will be mailbox money.