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I take monthly withdrawals from Wellesley Income which I hold in my traditional IRA. These withdrawals are roughly equivalent to the dividends. Is there any advantage to taking the dividends as cash versus my periodic selling of shares?
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My practice is to take the dividends. I let the individual companies decide what a sustainable disbursement rate is.
Luckily for me (my mother actually: this is her account) that plus her pension and SS keep her cash hovering around a positive value while the NAV continues to grow. Perhaps once every year or so I sell off a little something but, so far, it is usually less than the NAV increase. It's a happy balance.
Taking the dividends is the lazy man's way of getting cash, and I mean that in a good way. No fuss. It just shows up every three months.
EDIT: I guess I should explain that "Can of Worms." This topic tends to get a lot of (virtual) ink. One of the latest threads is 5 pages: viewtopic.php?f=10&t=118228
There is a theory that the common people know what they want, and deserve to get it good and hard. -- H. L. Mencken (almost)
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Magruder wrote:I take monthly withdrawals from Wellesley Income which I hold in my traditional IRA. These withdrawals are roughly equivalent to the dividends. Is there any advantage to taking the dividends as cash versus my periodic selling of shares?
It doesn't really matter in an IRA, as long as you don't get engaged in mental accounting. The amount you withdraw should meet your needs (and your ability to keep taking withdrawals), independent of the dividends. For example, if interest rates rise, the dividends will increase (because the fund purchases new bonds with higher rates), but your ability to spend money from the IRA will not go up. Conversely, if the stock market rises, the dividends will not increase much, but you will have more money in the fund and thus might be able to increase your spending.
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