Taxation of reinvested dividends in a mutual fund retirement account

[engr]

Hello all,

I received a 1099 div online form from vanguard I have a retirement account (traditional Ira) in which I have the dividends reinvested. From what I read those dividends do NOT have to be claimed as income on my 1040 taxes I take monthly withdrawals from this retirement account (approx $800/month) to supplement my pension income. What I read in goggle is that the reinvested dividends in this retirement account are taxed at ordinary tax rates when withdraw from the account . My question is when I take these monthly withdraws I’m assuming I am taking principle dollars only and no dollars from dividends. How do I know when I’m withdrawing strictlydollars from dividends that I have to report on my taxes? Thanks for any advice.

 

[Sunset]

All your withdrawals from an IRA are taxable and treated the same, does not matter if they were: interest, dividends, capital gains (long or short), options, principal, etc.

Are you sure it wasn't a 1099-R ?

 

[RockyMtn]

You won't know and it won't matter. All withdrawals from an ordinary IRA are treated as ordinary income and taxed as such.

 

[38Chevy454]

All dividends or other income generated inside the pretax account are tax free when received. It just adds to the total amount in the account. So just as Sunset said, once withdrawn, it just comes from the total account value and is taxed as income at whatever your tax rate comes out to be.

 

[Montecfo]

Something makes no sense. You sure you do not also have an after-tax account?

 

[pb4uski]

+1 OP would not get a 1099-DIV from a traditional IRA.

I'm guessing that he really has a taxable brokerage account, is receiving dividends that are reinvested and received a 1099-DIV.

Or the account is really a traditional IRA and he receives a 1099-R for his withdrawals and dividends from investments in the account are reinvested.

 

[LOL!]

I think the OP's description is not precise, but nothing wrong with it. The OP may have a taxable account that he uses to pay for retirement. If so, it is not an IRA. But he has an IRA as well. So he got a 1099-DIV for some dividends paid in 2020. It doesn't matter whether he spent the dividends on food, rent, mortgage, gasoline, OR buying more shares of an investment including the investment that paid the dividend. That last thing is usually called "reinvestment of the dividend."

So the OP must add this dividend payment to their Form 1040 Schedule B and probably pay taxes on it since it will be included in their Adjusted Gross Income (AGI). But the OP could be lucky and maybe their tax rate on qualified dividend income is 0%.

Vanguard would not send a 1099-DIV for an IRA, but they have been known to make mistakes. But posters have also been known to make mistakes and describe things incorrectly, too. For example, maybe the OP really got a 1099-R because they had the dividends in the traditional IRA get sent to their checking account and not reinvested?

But the monthly withdrawals will be noted on the 1099-R and it won't matter if they come from the money originally invested or from dividends or from dividends that were reinvested to buy shares or .....

 

[jollystomper]

+1 OP would not get a 1099-DIV from a traditional IRA.

I'm guessing that he really has a taxable brokerage account, is receiving dividends that are reinvested and received a 1099-DIV.

Or the account is really a traditional IRA and he receives a 1099-R for his withdrawals and dividends from investments in the account are reinvested.

Based on OP's earlier posts which indicated a large amount in traditional IRAs, if I were a betting person I would put my money on OP mistaking the 1099-R for a 1099-DIV. But I am not a betting person so I will wait for OP to clarify the situation.

 

[engr]

I later realized I had looked at the vanguard incorrectly. The 1099 div were for my taxable accounts totally my error. Thanks for all who responded!