Vanguard reinvested my dividends - what now?

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Ella
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Vanguard reinvested my dividends - what now?

Post by Ella » Fri Mar 17, 2017 2:05 pm

I merged my brokerage and mutual fund accounts at Vanguard on January 23. Prior to that date, all my funds were set to sweep dividends and cap gains.

On the merger date, dividends were reinvested for Vanguard Intermediate Treasury and Vanguard Intermediate Tax Exempt. No reinvestments since and the funds are set to sweep.

I purposely sweep to keep my financial/tax life simple. That way I can rely on the cost basis of my purchases (which I make only a few times a year) and not track a lot of lots. I also don't have to learn a lot about taxes that way, either (or at least that's how it seems to me).

My question: how do I most cleanly deal with these reinvested dividends? Is there a form I can save from VG and use as a cost basis tracker for that money? Could I sell the reinvested amount now to clean up the mess? Is there anything I am missing?

Momentary rant/apology: I already tried calling VG and was told they could not answer my question. It is probably a simple problem but I have so little mental bandwidth right now that I feel like this is beyond me to resolve. So please forgive me for not trying harder to figure it out on my own.

Thanks
Ella

TOJ
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Re: Vanguard reinvested my dividends - what now?

Post by TOJ » Fri Mar 17, 2017 2:08 pm

I'd try on the phone again. They have made similar adjustments for me in the past. One was when a purchase did not go through for some reason. They "purchased" it for me at the 3-months-ago price. I'm sure they can back your dividends out.

Topic Author
Ella
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Re: Vanguard reinvested my dividends - what now?

Post by Ella » Fri Mar 17, 2017 2:14 pm

Thanks TOJ but I asked and was told emphatically by VG that it could not be undone. And at this point I am so aggravated at VG's customer service that I don't want to try talking to their reps again.

FactualFran
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Re: Vanguard reinvested my dividends - what now?

Post by FactualFran » Fri Mar 17, 2017 2:22 pm

Ella wrote: My question: how do I most cleanly deal with these reinvested dividends? Is there a form I can save from VG and use as a cost basis tracker for that money? Could I sell the reinvested amount now to clean up the mess? Is there anything I am missing?
I suggest that you do nothing now about the dividends that were reinvested.

Because Vanguard will keep track of the cost of the shares bought by the dividends that were reinvested, there is no need for you to save a form from Vanguard.

Whether you should sell the shares bought by the dividends that were reinvested is up to you. I don't see it as a mess that needs to be cleaned up.

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GerryL
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Re: Vanguard reinvested my dividends - what now?

Post by GerryL » Fri Mar 17, 2017 2:28 pm

I seem to recall that when I converted to brokerage (4 accounts!) I was sent a wordy and confusing email (for each conversion) about what settings would and would not carry over -- what to do with dividends being one of them -- and what I needed to do to manage my account settings following the conversion. I would guess they feel they are off the hook since they probably warned you that you would need to review your account settings.

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Kevin M
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Re: Vanguard reinvested my dividends - what now?

Post by Kevin M » Fri Mar 17, 2017 2:37 pm

Do you access your account online at Vanguard.com? If so, you can view your cost basis on the Balances & Holdings screen. Just click the Cost Basis tab for the account of interest.

If you want to track it yourself, then just add the reinvested dividends to your purchase amounts to get your basis. Use the same method you use to track your purchase amounts, and just include the dividends in that.

Kevin
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Chuck
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Re: Vanguard reinvested my dividends - what now?

Post by Chuck » Fri Mar 17, 2017 2:45 pm

I got the same thing. At the time of the account conversion, the partial accrued dividend was converted to shares. My settings were preserved (to sweep future dividends to the settlement fund) and I assume that will work. So it should just be a one time thing.

My advice is to do nothing and don't worry about it. When you sell, it will minimally affect your average cost basis, or it will be SpecID'd.

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dual
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Re: Vanguard reinvested my dividends - what now?

Post by dual » Fri Mar 17, 2017 2:48 pm

The effect of the reinvested shares on the amount of your taxes is negligible

As to complexity of filling out your return, when you sell the shares Turbotax and probably HRBlock will download information directly from Vanguard and fill out all your forms.

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CAsage
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Re: Vanguard reinvested my dividends - what now?

Post by CAsage » Fri Mar 17, 2017 2:51 pm

If you have your Vanguard account set up for "specific identifcation" of lots, then they will automatically track this for you. If you have not done any selling before, then you can select this option (under cost basis methods), and use it in the future. You might find it useful, when you have the mental bandwidth, to learn that you can control (influence might be a better word) what your capital gains are and then choose high or low.

Actually, to simplify my life, I always choose to sell off the monthly lots of dividends just to get rid of them whenever I need a withdrawal, and have been known to dump (transfer to similar fund) the investment periodically to clean house!
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Re: Vanguard reinvested my dividends - what now?

Post by barnaclebob » Fri Mar 17, 2017 2:55 pm

You could always sell the lot that contained the dividends and it would be the same effect aside from taxes due to gains/losses since that date.

Chuck
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Re: Vanguard reinvested my dividends - what now?

Post by Chuck » Fri Mar 17, 2017 3:00 pm

As long as Vanguard only goes from separate accounts for each mutual fund to single brokerage accounts every 40 years or so, you probably don't have to worry about this again.

aristotelian
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Re: Vanguard reinvested my dividends - what now?

Post by aristotelian » Fri Mar 17, 2017 3:00 pm

VG tracks your cost basis for you. If it is just a tracking issue, I guess I don't understand the problem.

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Re: Vanguard reinvested my dividends - what now?

Post by dbr » Fri Mar 17, 2017 3:21 pm

The problem is that VG did what the investor specifically specified they not do. The fact that the consequences are minor or none does not change the principle of how you do business in an ethical manner. Now, there is the issue of possible notifications that various settings might default and have to be reset. I don't think asking investors to reset preferences is a particularly good way to do business, but it is somewhat mitigating.

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Re: Vanguard reinvested my dividends - what now?

Post by TropikThunder » Fri Mar 17, 2017 6:15 pm

dbr wrote:The problem is that VG did what the investor specifically specified they not do. The fact that the consequences are minor or none does not change the principle of how you do business in an ethical manner. Now, there is the issue of possible notifications that various settings might default and have to be reset. I don't think asking investors to reset preferences is a particularly good way to do business, but it is somewhat mitigating.
Is it really a question of Vanguard not doing what she wanted? The two funds she is referring to are bond funds for whom "dividends generally are declared daily and distributed monthly". When they migrated from the original account to the merged brokerage account, it's essentially an in-kind transfer since the account number is different, which triggers a distribution of the accrued interest from 12-31-2107 to the transfer date of 01-23-2017. If the distribution had not been reinvested, would it have been "orphaned" in the now-closed original account?

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Re: Vanguard reinvested my dividends - what now?

Post by dbr » Fri Mar 17, 2017 6:24 pm

TropikThunder wrote:
dbr wrote:The problem is that VG did what the investor specifically specified they not do. The fact that the consequences are minor or none does not change the principle of how you do business in an ethical manner. Now, there is the issue of possible notifications that various settings might default and have to be reset. I don't think asking investors to reset preferences is a particularly good way to do business, but it is somewhat mitigating.
Is it really a question of Vanguard not doing what she wanted? The two funds she is referring to are bond funds for whom "dividends generally are declared daily and distributed monthly". When they migrated from the original account to the merged brokerage account, it's essentially an in-kind transfer since the account number is different, which triggers a distribution of the accrued interest from 12-31-2107 to the transfer date of 01-23-2017. If the distribution had not been reinvested, would it have been "orphaned" in the now-closed original account?
I guess the idea is that VG would figure out how to do this without creating a disconnect such as orphaned cash.

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House Blend
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Re: Vanguard reinvested my dividends - what now?

Post by House Blend » Sat Mar 18, 2017 10:50 am

dbr wrote:
TropikThunder wrote:
dbr wrote:The problem is that VG did what the investor specifically specified they not do. The fact that the consequences are minor or none does not change the principle of how you do business in an ethical manner. Now, there is the issue of possible notifications that various settings might default and have to be reset. I don't think asking investors to reset preferences is a particularly good way to do business, but it is somewhat mitigating.
Is it really a question of Vanguard not doing what she wanted? The two funds she is referring to are bond funds for whom "dividends generally are declared daily and distributed monthly". When they migrated from the original account to the merged brokerage account, it's essentially an in-kind transfer since the account number is different, which triggers a distribution of the accrued interest from 12-31-2107 to the transfer date of 01-23-2017. If the distribution had not been reinvested, would it have been "orphaned" in the now-closed original account?
I guess the idea is that VG would figure out how to do this without creating a disconnect such as orphaned cash.
Brokerages have to do *something* with the orphaned dividends when an account is emptied out, and I know from past experience that they often will do non-routine things.

In January, I tax loss harvested by exchanging all shares of one Vanguard muni fund for another. I had this fund set to distribute all dividends to my checking account.

Pop Quiz: Given the way I configured my account, what would be the "correct" way to handle the orphaned dividends?

Answer: I have no idea.

And it didn't matter to me enough to ask Vanguard in advance what would happen. As it turns out, they mailed a paper check to my address of record. Which was fine with me, even though it took a few extra days compared to ACH.

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Re: Vanguard reinvested my dividends - what now?

Post by Chip » Sat Mar 18, 2017 2:24 pm

A family member had two Vanguard bond funds held in a mutual fund account. Both were set to send dividends to Prime Money Market, and had been for years.

The owner died. As soon as Vanguard was notified of the death they switched both bond funds to automatic reinvestment in the fund, without any instructions to do so.

I called to complain. I had some standing as a TOD beneficiary of the accounts. I was told that was the default and it couldn't be changed, despite the earlier arrangement and my wishes. And they didn't even seem to care.

Sure, it wasn't a huge thing, but it's annoying. This kind of stuff is why I don't have accounts there. Love their funds but not their account management.

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Re: Vanguard reinvested my dividends - what now?

Post by aristotelian » Sat Mar 18, 2017 3:22 pm

dbr wrote:The problem is that VG did what the investor specifically specified they not do. The fact that the consequences are minor or none does not change the principle of how you do business in an ethical manner. Now, there is the issue of possible notifications that various settings might default and have to be reset. I don't think asking investors to reset preferences is a particularly good way to do business, but it is somewhat mitigating.
OK, but I am trying to help OP solve the problem, but I am not sure what the problem is. I agree VG should not have done it. But if it is a matter of cost basis tracking, VG does that for you.

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TheGreyingDuke
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Re: Vanguard reinvested my dividends - what now?

Post by TheGreyingDuke » Sat Mar 18, 2017 3:32 pm

I had a different snafu when converting to the all-in-one account. My dividends had been swept to an external account and with the switch, that setting was lost and the funds were deposited in my sweep account. Once I saw that I re-activated the prior setting.

I did look through the paperwork that accompanied the switch and if I recall correctly, there was something in there that cautioned me that the prior setting would need to be re-activated.

If this was one month's dividends, just sell them, in a bond fund any capital gains would be minimal.
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Toons
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Re: Vanguard reinvested my dividends - what now?

Post by Toons » Sat Mar 18, 2017 4:47 pm

aristotelian wrote:VG tracks your cost basis for you. If it is just a tracking issue, I guess I don't understand the problem.
+1
Bingo :happy
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Topic Author
Ella
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Re: Vanguard reinvested my dividends - what now?

Post by Ella » Sun Mar 26, 2017 9:41 am

Thanks to all who replied. I've sold the reinvested dividends just to keep everything clean. It's dumb in a way, but I like to track every purchase (and every corresponding sale) via saving the trade confirmation pdf. I can't do that with these reinvested dividends, so easier just to sell them. (I do specID so VG does track them, but.)

I have triple checked to make sure all my accounts are set the way I want them (sweep, specID).

Thanks again to this group for your help and advice.

Ella

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