should I reinvest capital gains and dividends in a taxable account?

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canonayu
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should I reinvest capital gains and dividends in a taxable account?

Post by canonayu » Thu Sep 06, 2018 12:37 pm

I have vtsax and schwab target date fund in a taxable account. should I reinvest or just take the cash?

rkhusky
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Re: should I reinvest capital gains and dividends in a taxable account?

Post by rkhusky » Thu Sep 06, 2018 12:43 pm

canonayu wrote:
Thu Sep 06, 2018 12:37 pm
I have vtsax and schwab target date fund in a taxable account. should I reinvest or just take the cash?
It doesn't matter, you are taxed on the dividend/cap gain whether you reinvest or not. It is personal preference. There are those that don't like to keep track of a lot of small purchases and so send the dividends/cap gains to a money market account. When the MM account gets big enough, they make a purchase. There may be some that reinvest in funds that pay out yearly, but take cash for quarterly or monthly dividends.
Last edited by rkhusky on Thu Sep 06, 2018 12:44 pm, edited 1 time in total.

PFInterest
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Re: should I reinvest capital gains and dividends in a taxable account?

Post by PFInterest » Thu Sep 06, 2018 12:44 pm

you of course should reinvest. but manually, not automatically.
you should not have a TDF in a taxable account.

stan1
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Re: should I reinvest capital gains and dividends in a taxable account?

Post by stan1 » Thu Sep 06, 2018 12:44 pm

It's your decision. I still prefer to have dividends in taxable go into a money market account and then reinvest myself so I can rebalance. Now that brokers are required to maintain cost basis the administrative part of having many tax lots should be simpler (although some people do still maintain their own cost basis records as well and there have been multiple reports that Vanguard has made mistakes in keeping accurate cost basis).

Darth Xanadu
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Re: should I reinvest capital gains and dividends in a taxable account?

Post by Darth Xanadu » Thu Sep 06, 2018 1:00 pm

rkhusky wrote:
Thu Sep 06, 2018 12:43 pm
canonayu wrote:
Thu Sep 06, 2018 12:37 pm
I have vtsax and schwab target date fund in a taxable account. should I reinvest or just take the cash?
It doesn't matter, you are taxed on the dividend/cap gain whether you reinvest or not. It is personal preference. There are those that don't like to keep track of a lot of small purchases and so send the dividends/cap gains to a money market account. When the MM account gets big enough, they make a purchase. There may be some that reinvest in funds that pay out yearly, but take cash for quarterly or monthly dividends.
Precisely what I do. I used to auto reinvest, but now I feel like things are just simpler for me with the cash payments.
"A courageous teacher, failure is."

sport
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Re: should I reinvest capital gains and dividends in a taxable account?

Post by sport » Thu Sep 06, 2018 1:00 pm

I accumulate all the distributions in a MM fund. Since the distributions have already incurred the tax liability, I have the money available for spending, if needed. If not, I reinvest once a year, and use the money for rebalancing.

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FiveK
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Re: should I reinvest capital gains and dividends in a taxable account?

Post by FiveK » Thu Sep 06, 2018 1:19 pm

If you need the cash for ongoing expenses, don't reinvest.

If you don't need the cash for ongoing expenses, it's a matter of taste whether to reinvest automatically or manually.

See also Taxable account cost basis. Specific ID, FIFO or average cost? - Bogleheads.org.

canonayu
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Re: should I reinvest capital gains and dividends in a taxable account?

Post by canonayu » Thu Sep 06, 2018 1:29 pm

PFInterest wrote:
Thu Sep 06, 2018 12:44 pm
you of course should reinvest. but manually, not automatically.
you should not have a TDF in a taxable account.
I know it's not tax effecient, but I have to for personal reasons.
Also, which is better for taxable accounts, vanguards vs schwab target date fund?

delamer
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Re: should I reinvest capital gains and dividends in a taxable account?

Post by delamer » Thu Sep 06, 2018 2:21 pm

What’s the purpose of the account? What would you do with the cash?

The Wizard
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Re: should I reinvest capital gains and dividends in a taxable account?

Post by The Wizard » Thu Sep 06, 2018 2:30 pm

PFInterest wrote:
Thu Sep 06, 2018 12:44 pm
you of course should reinvest. but manually, not automatically.
you should not have a TDF in a taxable account.
Correct.
And the reason for not having a target date fund is so you can TLH either the total US stock fund or the total international stock fund when conditions are right...
Attempted new signature...

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Duckie
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Re: should I reinvest capital gains and dividends in a taxable account?

Post by Duckie » Thu Sep 06, 2018 3:50 pm

canonayu wrote:Also, which is better for taxable accounts, vanguards vs schwab target date fund?
The primary factor is the amount of bonds in the target-date fund, no matter the fund company. The more bonds the less tax-efficient. But because Vanguard has a patent on their ETFs their funds avoid capital gains distributions which makes them more tax-efficient, although I don't know how much the difference is.

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Toons
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Re: should I reinvest capital gains and dividends in a taxable account?

Post by Toons » Thu Sep 06, 2018 3:52 pm

Reinvesting=Compounding=Wealth Creation
:happy
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee

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