VTSAX & VTI Dividends

[Time2]

I have always had my dividends reinvested back into the fund.
I pay the taxes out of other income.
This year I'm searching for low taxed income (as always) to be spent next year. I have received the usual dividend payments on my taxable VTSAX & VTI and I will owe tax on them.
Is there anyway to take them out after they have been reinvested without changing the taxes due?
Example: I receive $10,000 of dividends from Vanguard earned on VTSAX & VTI ( I assume they both are Qualified Dividends) Can I withdraw $10,000 from those accounts and still just owe the tax on the $10,000 of Qualified dividends, and not additional for LTCGs? Do I need to pick the proper lots?
It seems like I would need to pick the shares bought with my dividends and sell those.

 

[PaunchyPirate]

I have always had my dividends reinvested back into the fund.
I pay the taxes out of other income.
This year I'm searching for low taxed income (as always) to be spent next year. I have received the usual dividend payments on my taxable VTSAX & VTI and I will owe tax on them.
Is there anyway to take them out after they have been reinvested without changing the taxes due?
Example: I receive $10,000 of dividends from Vanguard earned on VTSAX & VTI ( I assume they both are Qualified Dividends) Can I withdraw $10,000 from those accounts and still just owe the tax on the $10,000 of Qualified dividends, and not additional for LTCGs? Do I need to pick the proper lots?
It seems like I would need to pick the shares bought with my dividends and sell those.

You can't "withdraw" money from these mutual funds/ETFs. You must sell shares to get the cash proceeds and then withdraw the cash. When you make the sale, capital gains taxes may be due of you sold for more than you paid.

Once the dividends were re-invested, they then had their own purchase price (i.e. basis). You can certainly sell those specific lots (assuming you have Specific ID set as your cost tracking type), but you will need to pay any capital gains if the shares are worth more now than they were when they were purchased at the time of re-investment. It is quite possible the cost basis of the lots from re-investment will be lower than your older purchases, but not necessarily.

If you set the cost tracking as Specific ID for your mutual fund/ETF, then you can pick and choose from any and all of the purchased lots (from re-invested dividends or otherwise) to minimize your capital gains.

 

[Bigdawg]

I have always had my dividends reinvested back into the fund.
I pay the taxes out of other income.
This year I'm searching for low taxed income (as always) to be spent next year. I have received the usual dividend payments on my taxable VTSAX & VTI and I will owe tax on them.

Not directly answering your question re: VTSAX and/or VTI but what you are looking for is low tax income. I would look at all of your investments, find the ones with the least appreciation (cap gains) and sell those. It might be VTSAX and/or VTI but it might be something else. Or maybe even grab some out of your ROTH (if you have ROTH funds). Good luck.

 

[Time2]

Not directly answering your question re: VTSAX and/or VTI but what you are looking for is low tax income. I would look at all of your investments, find the ones with the least appreciation (cap gains) and sell those. It might be VTSAX and/or VTI but it might be something else. Or maybe even grab some out of your ROTH (if you have ROTH funds). Good luck.

I'm trying to make room for as much Roth conversion as possible, so don't really want to remove money from my Roth.
I can make a little sense to doing that, It will reduce my RMDs when the start.

 

[Bigdawg]

I'm trying to make room for as much Roth conversion as possible, so don't really want to remove money from my Roth.
I can make a little sense to doing that, It will reduce my RMDs when the start.

Converting from your lowest cap gain/appreciated asset will give yu the largest conversion to ROTH. My advice still stands. Good luck. I haven't started my conversions yet. Most likely in a few years when DW retires.

 

[ERD50]

VTSAX & VTI ( I assume they both are Qualified Dividends)

It might be a mix, I don't think it would be 100% qualified. Do you have your 1099-DIVs from last year, that would break it out?

I'd suggest you stop the auto-reinvest of divs. Use them as income, or re-invest as a lump into whatever you choose. That can be part of your rebalancing. I suggest this for anyone.

After stopping the auto-reinvest you might also consider waiting 31 days from last dividend re-invest before doing any selling. You could end up with a wash sale. Not the end of the world, but a needless complication on your taxes.

-ERD50

 

[SecondCor521]

I have always had my dividends reinvested back into the fund.
I pay the taxes out of other income.
This year I'm searching for low taxed income (as always) to be spent next year. I have received the usual dividend payments on my taxable VTSAX & VTI and I will owe tax on them.
Is there anyway to take them out after they have been reinvested without changing the taxes due?
Example: I receive $10,000 of dividends from Vanguard earned on VTSAX & VTI ( I assume they both are Qualified Dividends) Can I withdraw $10,000 from those accounts and still just owe the tax on the $10,000 of Qualified dividends, and not additional for LTCGs? Do I need to pick the proper lots?
It seems like I would need to pick the shares bought with my dividends and sell those.

Are these VTSAX/VTI dividends in a taxable account, a traditional IRA, or other?

What exactly are you trying to accomplish (while trying to not increase your tax bill - I get that part)? Are you trying to raise cash to spend, or Roth convert, or ... ?

If they're in a taxable account, it seems you could accomplish what you seem to want by turning off dividend reinvestment. Then you could have that $10K in dividend income sent over to your checking account. If the $10K is too much, then you could manually send back, say, $3K and buy more VTSAX/VTI manually.

If they're in a traditional IRA, then it doesn't matter tax-wise. Any Roth conversions of money from your traditional IRA are ordinary income - it doesn't matter if the money comes from dividends, capital gains, or shares transferred in-kind. Same thing with traditional IRA withdrawals, with the addition of a potential 10% penalty for early withdrawal if you are under 59.5 and don't meet one of the listed exceptions.

If it's another type of account, I'd have to think more.

 

[pb4uski]

I have always had my dividends reinvested back into the fund.
I pay the taxes out of other income.
This year I'm searching for low taxed income (as always) to be spent next year. I have received the usual dividend payments on my taxable VTSAX & VTI and I will owe tax on them.
Is there anyway to take them out after they have been reinvested without changing the taxes due?
Example: I receive $10,000 of dividends from Vanguard earned on VTSAX & VTI ( I assume they both are Qualified Dividends) Can I withdraw $10,000 from those accounts and still just owe the tax on the $10,000 of Qualified dividends, and not additional for LTCGs? Do I need to pick the proper lots?
It seems like I would need to pick the shares bought with my dividends and sell those.

I presume that these are in a taxable account the way you framed the question. No, there is no way to take them out after they have gone in and not pay capital gains tax on any change in value since they were reinvested.

If you need the $10k then your best bet is to sell $10k worth and use specific identification of purchase lots to select 1) lots with a loss and 2) lots with the smalllest gains. These may or may not be the reinvestment lots.

You're overthinking it.

 

[Time2]

Are these VTSAX/VTI dividends in a taxable account, a traditional IRA, or other?

These dividends are from a taxable account.

What exactly are you trying to accomplish (while trying to not increase your tax bill - I get that part)? Are you trying to raise cash to spend, or Roth convert, or ... ?

I'm raising cash for next years spending and putting as much in Roth Conversions as I can. I haven't decided whether to stay in the 12% bracket or go to 22%. But I suspect I'll max out the 22% bracket this year.

If they're in a taxable account, it seems you could accomplish what you seem to want by turning off dividend reinvestment. Then you could have that $10K in dividend income sent over to your checking account. If the $10K is too much, then you could manually send back, say, $3K and buy more VTSAX/VTI manually.

I have already received, probably $7,500 of my expected $10,000 as reinvested dividends. So a little late to do the switch, but, the last dividend of the year will help as some more income. As I'm already going to have to pay tax on it, I may as well get it as income rather than reinvest.

If they're in a traditional IRA, then it doesn't matter tax-wise. Any Roth conversions of money from your traditional IRA are ordinary income - it doesn't matter if the money comes from dividends, capital gains, or shares transferred in-kind. Same thing with traditional IRA withdrawals, with the addition of a potential 10% penalty for early withdrawal if you are under 59.5 and don't meet one of the listed exceptions.

If it's another type of account, I'd have to think more.

 

[RetiredHappy]

So a little late to do the switch, but, the last dividend of the year will help as some more income. As I'm already going to have to pay tax on it, I may as well get it as income rather than reinvest.

As you said, you are already paying tax on the dividends, they should be the first bucket of money to be tapped into for spending.

We have turned off dividend reinvestment precisely for this reason. It helps meet half of the RMD requirement in IRA, and for our living expenses from our taxable accounts. It also gives us more control as to where we want to reinvest with the extras.

 

[Time2]

As you said, you are already paying tax on the dividends, they should be the first bucket of money to be tapped into for spending.

We have turned off dividend reinvestment precisely for this reason. It helps meet half of the RMD requirement in IRA, and for our living expenses from our taxable accounts. It also gives us more control as to where we want to reinvest with the extras.

So, I went and changed my dividends from reinvest to payout as cash.
I see this note:
"Your new mutual fund dividend election policy will become effective starting on the 5th business day of the following month."


So on Dec 5th that change will take affect.
Do I get the dividends paid as cash from Dec 5th until Dec 29th, or do I get the whole dividend from 9-29 to 12/29 paid to me as cash?

 

[PaunchyPirate]

So, I went and changed my dividends from reinvest to payout as cash.
I see this note:
"Your new mutual fund dividend election policy will become effective starting on the 5th business day of the following month."


So on Dec 5th that change will take affect.
Do I get the dividends paid as cash from Dec 5th until Dec 29th, or do I get the whole dividend from 9-29 to 12/29 paid to me as cash?

You will receive cash for any dividend that is paid after the 5th of December and continuing into 2022 and onward unless you change the setting again.

Dividends paid prior to December 5th have already been paid (from 9-29 to today) according to your prior settings. Those between today and December 5th sound like they will also be paid according to your prior settings.

It's interesting that it takes almost a month to make this change.

 

[RetiredHappy]

So, I went and changed my dividends from reinvest to payout as cash.
I see this note:
"Your new mutual fund dividend election policy will become effective starting on the 5th business day of the following month."


So on Dec 5th that change will take affect.
Do I get the dividends paid as cash from Dec 5th until Dec 29th, or do I get the whole dividend from 9-29 to 12/29 paid to me as cash?

I am not sure I understand your question. For each fund, there is a date for when dividends will be distributed. If the fund is slated to distribute on 12/5 and after, they are deposited into your cash/money market. It is the distribution date, which has nothing to do with how they are accrued within the index/mutual fund.

 

[SecondCor521]

So, I went and changed my dividends from reinvest to payout as cash.
I see this note:
"Your new mutual fund dividend election policy will become effective starting on the 5th business day of the following month."


So on Dec 5th that change will take affect.
Do I get the dividends paid as cash from Dec 5th until Dec 29th, or do I get the whole dividend from 9-29 to 12/29 paid to me as cash?

I'd expect you'll get the full 12/29(ish) dividend paid out to you in cash.

Sounds like turning off dividend reinvestment will meet your objective, at least partially.

Roth conversion and how much to do is sort of a separate question. There are lots of threads on the forum about that topic.

 

[pb4uski]

I'd expect you'll get the full 12/29(ish) dividend paid out to you in cash. ...

Actually, credited to your settlement account.

 

[SecondCor521]

Actually, credited to your settlement account.

Mine are actually sent directly from Vanguard to my checking account, FWIW, so "paid in cash" (I was using OP's language to try to avoid confusion) is an apt description to me.

The difference between my experience and yours may be due to the type of Vanguard taxable account one has. I think I have the "new style" account, but I'm not sure. I know there are differences between how the old style and new style of account behave.

 

[pb4uski]

Actually, you're right... we do that with my Dad's trust... dividends are transferred directly to my Mom's checking account since she is the beneficiary of the trust... I forgot about that.

Mine is a brokerage account so all my dividends go into the settlement account... not sure if I could have dividends sent direct to my checking or not since I'm not interested in doing that.