How are the Dividends in Roth IRA calculated?

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
Frugalbear
Posts: 76
Joined: Sun Jun 02, 2019 7:35 am

How are the Dividends in Roth IRA calculated?

Post by Frugalbear » Sun Nov 17, 2019 7:09 am

Good morning Bogleheads,

How are dividends calculated in a Roth IRA?

So for example if I max out my Roth IRA on 1/2/2020 vs 3/2/2020 will there be a difference in the dividends received for that quarter?

Also, is there a way to see when the dividend will be distributed and how much?
Currently 100% Vtsax
**FYI:I am not timing the market and not Dollar cost averaging.**
Last edited by Frugalbear on Sun Nov 17, 2019 7:42 am, edited 1 time in total.

sycamore
Posts: 39
Joined: Tue May 08, 2018 12:06 pm

Re: How are the Dividends in Roth IRA calculated?

Post by sycamore » Sun Nov 17, 2019 7:31 am

Frugalbear wrote:
Sun Nov 17, 2019 7:09 am
Good morning Bogleheads,

How are dividends calculated in a Roth IRA?

So for example if I max out my Roth IRA on 1/2/2020 vs 3/2/2020 will there be a difference in the dividends received for that quarter?

Also, is there a way to see when the dividend will be distributed and how much?

**FYI:I am not timing the market and not Dollar cost averaging.**
It depends on what fund you own in your Roth IRA. Many stock funds declare dividends once a quarter, usually in the 3rd week or so of the last month (like March for the 1st quarter). So it's likely it won't make a difference if your Roth IRA contribution happens on 1/2 versus 3/2.

The exact dividend rate (i.e., $ per share) won't be known until later in the quarter. But most fund providers like Vanguard, Fidelity, etc. will post declaration/ex-div/payable dates and a preliminary dividend rate a month ahead of time. Check your fund provider's website for details on your fund. For Vanguard, https://investornews.vanguard/upcoming- ... formation/ may help.

What fund or funds do you own?

Silk McCue
Posts: 3472
Joined: Thu Feb 25, 2016 7:11 pm

Re: How are the Dividends in Roth IRA calculated?

Post by Silk McCue » Sun Nov 17, 2019 7:35 am

The same way they are in every other type of account. The number of shares owned on the dividend date receive their dividend. This is true whether the share has been held 10 years or 1 day. You can look at a given fund on Vanguard for past distribution dates and amounts. Here is the page for VTSAX - Total Stock Market.

https://investor.vanguard.com/mutual-fu ... ions/vtsax

To make certain that we aren't missing some unstated assumption on your part which may or may not be true, please explain the underlying reason and thought process for this question.

Cheers

User avatar
RickBoglehead
Posts: 4987
Joined: Wed Feb 14, 2018 9:10 am
Location: In a house

Re: How are the Dividends in Roth IRA calculated?

Post by RickBoglehead » Sun Nov 17, 2019 7:39 am

Roth IRA, taxable IRA, taxable non-retirement account... All get the exact same dividends.

Funds that pay dividends will reduce their share prices by the amount of the dividend being paid on the ex-dividend date in the same manner as individual stocks.

You can see past dividends on the fund's listing: https://investor.vanguard.com/mutual-fu ... ions/vtsmx

If you own the fund on the record date, you will receive the fund dividend per share.
Avid user of forums on variety of interests-financial, home brewing, F-150, PHEV, home repair, etc. Enjoy learning & passing on knowledge. It's PRINCIPAL, not PRINCIPLE. I ADVISE you to seek ADVICE.

Arbol
Posts: 62
Joined: Sun Jul 14, 2019 3:12 pm

Re: How are the Dividends in Roth IRA calculated?

Post by Arbol » Sun Nov 17, 2019 7:40 am

Silk McCue wrote:
Sun Nov 17, 2019 7:35 am
The same way they are in every other type of account.
This. Dividend income is calculated the same way they are in every other type of account.

Topic Author
Frugalbear
Posts: 76
Joined: Sun Jun 02, 2019 7:35 am

Re: How are the Dividends in Roth IRA calculated?

Post by Frugalbear » Sun Nov 17, 2019 7:43 am

sycamore wrote:
Sun Nov 17, 2019 7:31 am
Frugalbear wrote:
Sun Nov 17, 2019 7:09 am
Good morning Bogleheads,

How are dividends calculated in a Roth IRA?

So for example if I max out my Roth IRA on 1/2/2020 vs 3/2/2020 will there be a difference in the dividends received for that quarter?

Also, is there a way to see when the dividend will be distributed and how much?

**FYI:I am not timing the market and not Dollar cost averaging.**
It depends on what fund you own in your Roth IRA. Many stock funds declare dividends once a quarter, usually in the 3rd week or so of the last month (like March for the 1st quarter). So it's likely it won't make a difference if your Roth IRA contribution happens on 1/2 versus 3/2.

The exact dividend rate (i.e., $ per share) won't be known until later in the quarter. But most fund providers like Vanguard, Fidelity, etc. will post declaration/ex-div/payable dates and a preliminary dividend rate a month ahead of time. Check your fund provider's website for details on your fund. For Vanguard, https://investornews.vanguard/upcoming- ... formation/ may help.

What fund or funds do you own?
100% VTSAX.... I added it to the question too.

lakpr
Posts: 3089
Joined: Fri Mar 18, 2011 9:59 am

Re: How are the Dividends in Roth IRA calculated?

Post by lakpr » Sun Nov 17, 2019 7:45 am

Collective Investment Trusts (CITs) do not distribute dividends to shareholders, they increase the NAV instead. These trusts usually have $50million minimum, so usually available only in 401k and 403b plans

Silk McCue
Posts: 3472
Joined: Thu Feb 25, 2016 7:11 pm

Re: How are the Dividends in Roth IRA calculated?

Post by Silk McCue » Sun Nov 17, 2019 7:48 am

Please provide an answer to my prior question.
To make certain that we aren't missing some unstated assumption on your part which may or may not be true, please explain the underlying reason and thought process for this question.
Cheers

User avatar
RickBoglehead
Posts: 4987
Joined: Wed Feb 14, 2018 9:10 am
Location: In a house

Re: How are the Dividends in Roth IRA calculated?

Post by RickBoglehead » Sun Nov 17, 2019 7:49 am

Frugalbear wrote:
Sun Nov 17, 2019 7:43 am

100% VTSAX.... I added it to the question too.
Did you look on Vanguard's site?

https://investor.vanguard.com/mutual-fu ... ions/vtsax

Looks like maybe $.34 per share around 12/20.
Avid user of forums on variety of interests-financial, home brewing, F-150, PHEV, home repair, etc. Enjoy learning & passing on knowledge. It's PRINCIPAL, not PRINCIPLE. I ADVISE you to seek ADVICE.

Topic Author
Frugalbear
Posts: 76
Joined: Sun Jun 02, 2019 7:35 am

Re: How are the Dividends in Roth IRA calculated?

Post by Frugalbear » Sun Nov 17, 2019 7:56 am

Silk McCue wrote:
Sun Nov 17, 2019 7:48 am
Please provide an answer to my prior question.
To make certain that we aren't missing some unstated assumption on your part which may or may not be true, please explain the underlying reason and thought process for this question.
Cheers
So the reason I asked the question was because I wasn't sure if there was a benefit of maxing the it out earlier than later in Q1. But now it's clear that asking as I have in before the 3rd week of March I won't miss out on the Dividends/further compounding interest.

ivk5
Posts: 986
Joined: Thu Sep 22, 2016 9:05 am

Re: How are the Dividends in Roth IRA calculated?

Post by ivk5 » Sun Nov 17, 2019 7:56 am

Frugalbear wrote:
Sun Nov 17, 2019 7:43 am
sycamore wrote:
Sun Nov 17, 2019 7:31 am
Frugalbear wrote:
Sun Nov 17, 2019 7:09 am
Good morning Bogleheads,

How are dividends calculated in a Roth IRA?

So for example if I max out my Roth IRA on 1/2/2020 vs 3/2/2020 will there be a difference in the dividends received for that quarter?

Also, is there a way to see when the dividend will be distributed and how much?

**FYI:I am not timing the market and not Dollar cost averaging.**
It depends on what fund you own in your Roth IRA. Many stock funds declare dividends once a quarter, usually in the 3rd week or so of the last month (like March for the 1st quarter). So it's likely it won't make a difference if your Roth IRA contribution happens on 1/2 versus 3/2.

The exact dividend rate (i.e., $ per share) won't be known until later in the quarter. But most fund providers like Vanguard, Fidelity, etc. will post declaration/ex-div/payable dates and a preliminary dividend rate a month ahead of time. Check your fund provider's website for details on your fund. For Vanguard, https://investornews.vanguard/upcoming- ... formation/ may help.

What fund or funds do you own?
100% VTSAX.... I added it to the question too.
You can lookup the dividend history for VTSAX and see that they pay dividends in mid to late Mar, Jun, Sep, and Dec. So in your example, no dividends between the two dates.

More importantly, do you understand why in a tax-advantaged account you shouldn’t care, assuming your dividends are being reinvested?

If your account is set to reinvest dividends, you’ll have more shares at lower NAV post-dividend. The value of the account will track market performance irrespective of the dividend.

If not, you’ll have the same number of shares at lower NAV, plus some cash, as if you had sold an equivalent amount of your position. This is why people generally have dividends reinvested during accumulation phase in tax-advantages accounts.

ivk5
Posts: 986
Joined: Thu Sep 22, 2016 9:05 am

Re: How are the Dividends in Roth IRA calculated?

Post by ivk5 » Sun Nov 17, 2019 7:58 am

Frugalbear wrote:
Sun Nov 17, 2019 7:56 am
Silk McCue wrote:
Sun Nov 17, 2019 7:48 am
Please provide an answer to my prior question.
To make certain that we aren't missing some unstated assumption on your part which may or may not be true, please explain the underlying reason and thought process for this question.
Cheers
So the reason I asked the question was because I wasn't sure if there was a benefit of maxing the it out earlier than later in Q1. But now it's clear that asking as I have in before the 3rd week of March I won't miss out on the Dividends/further compounding interest.
See my post above. I don’t think you understand how dividends work. (You’ll be on the right track when you understand that “compound interest” isn’t a concept that’s really relevant to your VTSAX position.)

Topic Author
Frugalbear
Posts: 76
Joined: Sun Jun 02, 2019 7:35 am

Re: How are the Dividends in Roth IRA calculated?

Post by Frugalbear » Sun Nov 17, 2019 8:04 am

ivk5 wrote:
Sun Nov 17, 2019 7:58 am
Frugalbear wrote:
Sun Nov 17, 2019 7:56 am
Silk McCue wrote:
Sun Nov 17, 2019 7:48 am
Please provide an answer to my prior question.
To make certain that we aren't missing some unstated assumption on your part which may or may not be true, please explain the underlying reason and thought process for this question.
Cheers
So the reason I asked the question was because I wasn't sure if there was a benefit of maxing the it out earlier than later in Q1. But now it's clear that asking as I have in before the 3rd week of March I won't miss out on the Dividends/further compounding interest.
See my post above. I don’t think you understand how dividends work. (You’ll be on the right track when you understand that “compound interest” isn’t a concept that’s really relevant to your VTSAX position.)
My dividends do reinvest and my understanding of compound interest was once my dividends reinvest, now I'm making dividends on the dividends next quarter.. isn't that compounding?

Also, what is the NAV?

Silk McCue
Posts: 3472
Joined: Thu Feb 25, 2016 7:11 pm

Re: How are the Dividends in Roth IRA calculated?

Post by Silk McCue » Sun Nov 17, 2019 8:05 am

Frugalbear wrote:
Sun Nov 17, 2019 7:56 am
Silk McCue wrote:
Sun Nov 17, 2019 7:48 am
Please provide an answer to my prior question.
To make certain that we aren't missing some unstated assumption on your part which may or may not be true, please explain the underlying reason and thought process for this question.
Cheers
So the reason I asked the question was because I wasn't sure if there was a benefit of maxing the it out earlier than later in Q1. But now it's clear that asking as I have in before the 3rd week of March I won't miss out on the Dividends/further compounding interest.
When a dividend is issued the price of the fund price drops immediately by the same amount. There is no add to the value of your holdings. You should be reinvesting dividends in a Roth. As a result you will hold more shares of the fund but its $ value will be the same.

Cheers

rkhusky
Posts: 7592
Joined: Thu Aug 18, 2011 8:09 pm

Re: How are the Dividends in Roth IRA calculated?

Post by rkhusky » Sun Nov 17, 2019 8:08 am

Frugalbear wrote:
Sun Nov 17, 2019 7:56 am
So the reason I asked the question was because I wasn't sure if there was a benefit of maxing the it out earlier than later in Q1. But now it's clear that asking as I have in before the 3rd week of March I won't miss out on the Dividends/further compounding interest.
Stock dividends don't matter in a tax-advantaged account. The share price will drop at the same time that you get the dividend, such that you will have the same amount of money before and after the dividend. In a taxable account, you have to pay tax on the dividend, even though you don't actually end up with more money.

Bond fund dividends are different - you end up with more money after a bond dividend is paid. And they are paid differently - usually monthly and the size of the dividend depends on how much of the fund you own each day of the month.
Last edited by rkhusky on Mon Nov 18, 2019 8:24 am, edited 1 time in total.

sycamore
Posts: 39
Joined: Tue May 08, 2018 12:06 pm

Re: How are the Dividends in Roth IRA calculated?

Post by sycamore » Sun Nov 17, 2019 8:42 am

Frugalbear wrote:
Sun Nov 17, 2019 8:04 am
ivk5 wrote:
Sun Nov 17, 2019 7:58 am
Frugalbear wrote:
Sun Nov 17, 2019 7:56 am
Silk McCue wrote:
Sun Nov 17, 2019 7:48 am
Please provide an answer to my prior question.
To make certain that we aren't missing some unstated assumption on your part which may or may not be true, please explain the underlying reason and thought process for this question.
Cheers
So the reason I asked the question was because I wasn't sure if there was a benefit of maxing the it out earlier than later in Q1. But now it's clear that asking as I have in before the 3rd week of March I won't miss out on the Dividends/further compounding interest.
See my post above. I don’t think you understand how dividends work. (You’ll be on the right track when you understand that “compound interest” isn’t a concept that’s really relevant to your VTSAX position.)
My dividends do reinvest and my understanding of compound interest was once my dividends reinvest, now I'm making dividends on the dividends next quarter.. isn't that compounding?

Also, what is the NAV?
NAV = net asset value. If you add up the values of all the holdings of a fund, it's what you get after subtracting out fund expenses. NAV is expressed as a per share amount. Basically says what one share of the fund is worth at the end of the day.

The "compounding interest" idea is often applied to, say, a savings account where your principal doesn't change. With a stock, the dividend is basically taken out of the stock's worth. If you choose to reinvest, your holdings have the same worth as before the dividend. But, yes, when next quarter comes around you'll have more shares than last time, and you'll get paid a dividend on that larger number of shares. That's the "compounding" you're interested in (pun!) and you will get.

dbr
Posts: 30806
Joined: Sun Mar 04, 2007 9:50 am

Re: How are the Dividends in Roth IRA calculated?

Post by dbr » Sun Nov 17, 2019 11:47 am

Frugalbear wrote:
Sun Nov 17, 2019 8:04 am

My dividends do reinvest and my understanding of compound interest was once my dividends reinvest, now I'm making dividends on the dividends next quarter.. isn't that compounding?
It is compounding but your picture is still incomplete. If you tabulate the total value of your investment, which is the number of shares held multplied by the price of a share, and compare that number between two times you will get a gain. The gain will be due to increasing the number of shares due to reinvesting dividends and also due to changes in the net asset value (NAV) of the shares. NAV will go up and down daily with mutual fund and every time a share trades with a stock or ETF. Anyway, divide the gain by the starting amount and you get the return for the period. We often think of return as an annual rate, but the math can be done daily, monthly, or whatever.

So compounding comes in when you consider successive periods following one another. The return for period two comes from gain on what was invested at the beginning of period two. But that is what was invested at the beginning of period one plus the gain in period one. So part of the period two result is the period two return on the gain in period one. That is compounding just as you imagined it except that for the complication that gain comes from both dividend and change in NAV.

Blender
Posts: 150
Joined: Wed May 13, 2015 10:56 am

Re: How are the Dividends in Roth IRA calculated?

Post by Blender » Sun Nov 17, 2019 3:03 pm

Frugalbear wrote:
Sun Nov 17, 2019 7:56 am
So the reason I asked the question was because I wasn't sure if there was a benefit of maxing the it out earlier than later in Q1. But now it's clear that asking as I have in before the 3rd week of March I won't miss out on the Dividends/further compounding interest.
So just to clarify what others have already said, dividends matter not in a tax advantaged account. If the dividend does a 1% payout the price of a share is reduced by 1% at the time of the payout. If you take market price fluctuations out of the equation you would still hold the same total $$$ after a dividend payout as you did before. So you should fund your Roth when it makes the most sense for you without worrying a bit about dividends.

vtMaps
Posts: 582
Joined: Tue Oct 14, 2008 12:05 pm
Location: central Vermont

Re: How are the Dividends in Roth IRA calculated?

Post by vtMaps » Sun Nov 17, 2019 3:33 pm

Frugalbear wrote:
Sun Nov 17, 2019 7:56 am
But now it's clear that asking as I have in before the 3rd week of March I won't miss out on the Dividends/further compounding interest.
Not so clear to me.

Let's say that you want to buy $6,000 of VTSAX the day BEFORE the dividend, and let's say that buys you 77.42 shares (at 77.5 per share). The next day it pays a dividend of $26.32. The 77.42 shares are now worth $5,973.68. You reinvest the dividend and buy 0.34 more shares. You now have 77.76 shares worth $6,000.

Now, let's say you want to buy $6,000 of VTSAX the day AFTER the dividend. The shares are worth $77.16 each, so $6,000 buys you 77.76 shares.

You end up with the same results either way.

--vtMaps
The optimist proclaims that we live in the best of all possible worlds; and the pessimist fears this is true. --James Branch Cabell

Post Reply