Not reinvesting dividends from FTSE

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Not reinvesting dividends from FTSE

Postby Cody » Sun Mar 24, 2013 11:10 am

Are there any tax implications for not reinvesting dividends from FTSE (in taxable) and just using the money to purchase Roths? It is not showing up as a short term cap gain.

Thanks,
Cody
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Re: Not reinvesting dividends from FTSE

Postby Blues » Sun Mar 24, 2013 11:14 am

Whether you reinvest the distributions or not they will be taxable since they derive from a taxable account.

What you do with the funds afterward is your own affair as long as you are entitled to contribute to a Roth.
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Re: Not reinvesting dividends from FTSE

Postby livesoft » Sun Mar 24, 2013 11:15 am

No extra tax implications since these are dividends which you pay taxes on anyways whether you reinvest or not. Of course, you need compensation to invest in a Roth, so I assume you have earned income (say from a job) and are just using the dividends as a convenience.
It's all about short-term opportunistic rebalancing due to a short-term change in one's asset allocation, uh, I mean opportunistic rebalancing, uh I mean rebalancing, uh I mean market timing.
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Re: Not reinvesting dividends from FTSE

Postby Cody » Tue Mar 26, 2013 8:41 am

Thanks much!

And thanks for the heads up on having earned income for Roths. I do have some, but it is limited to about $4000 per year. So I'll wait until the end the year or even into April of 2014 to buy the Roth to that amount.

Again thanks,
Cody
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Re: Not reinvesting dividends from FTSE

Postby Cody » Tue Mar 26, 2013 8:45 am

Oh - an one more question on that.

Capital gaines I assume come from an increase in the NAV for a given taxable fund. And if left for one year become long term cap gaines and taxed at the 15% (for 25% tax bracket) or whatever your tax bracket tells you the taxes are on them.

But what tax status do dividends recieve?

Juat trying to clarify.

T
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Re: Not reinvesting dividends from FTSE

Postby kaneohe » Tue Mar 26, 2013 10:45 am

Capital gains come when you sell appreciated securities. If they appreciate but you don't sell, they are unrealized gains and are not taxable. LTCGs (held >1yr) are typically taxed at 0% (if in 15% bracket) or 15% (if in higher brackets) (there may be higher rates for higher earners).

You can also get capital gain distributions from funds even if you don't sell them. They are taxed like LTCGs (sometimes they are ST and are taxed like ordinary income).

Dividends , if qualified , are taxed like LTCGs. If they are ordinary but not qualified, they are taxed like ordinary income.
(there may be higher rates for higher earners).

homework: http://www.fairmark.com/mutual/funds101.htm
Last edited by kaneohe on Tue Mar 26, 2013 10:56 am, edited 1 time in total.
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Re: Not reinvesting dividends from FTSE

Postby House Blend » Tue Mar 26, 2013 10:46 am

Cody wrote:But what tax status do dividends recieve?


Dividends from stocks and stock funds come in two flavors: qualified and non-qualified.

Qualified dividends are taxed at the same rates as long-term capital gains, so 15% in your bracket. Non-qualified dividends are taxed at the same rate as ordinary income.

You didn't clarify what you meant by "FTSE", but I'll assume you meant Vanguard's FTSE ex-US Large Cap fund (VFWIX/VFWAX/VEU). It distributes both qualified and non-qualified dividends every year. The percentage varies, but typically it is 70% qualified.

Advanced topic:
If you sell shares that you have held 60 days or less, then any dividends distributed from those shares are not qualified. So you can't always trust your 1099 to have a correct accounting of your qualified dividends.
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Re: Not reinvesting dividends from FTSE

Postby kaneohe » Tue Mar 26, 2013 11:05 am

kaneohe wrote:Capital gains come when you sell appreciated securities. If they appreciate but you don't sell, they are unrealized gains and are not taxable. LTCGs (held >1yr) are typically taxed at 0% (if in 15% bracket) or 15% (if in higher brackets) (there may be higher rates for higher earners).

You can also get capital gain distributions from funds even if you don't sell them. They are taxed like LTCGs (sometimes they are ST and are taxed like ordinary income).

Dividends , if qualified , are taxed like LTCGs. If they are ordinary but not qualified, they are taxed like ordinary income.
(there may be higher rates for higher earners).

homework: http://www.fairmark.com/mutual/funds101.htm

note: this link, while quite good, was written a few yrs ago so there are some more current developments that aren't covered.
Still, a good starting pt.
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