What good investment pays qualified dividends?

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michaelcarr123
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Joined: Tue Nov 10, 2020 4:32 pm

What good investment pays qualified dividends?

Post by michaelcarr123 »

Currently, I have a large amount of money invested in Vanguard Federal Money Market Fund (VMFXX). Currently, VMFXX pays 5.27%. It is treated as a non-qualified/ordinary dividend. Since I am in the top tax bracket, I pay 37% tax on the dividends that are received on that fund. So, effectively I receive 3.16% return after deducting the 37% tax I pay on it since it's taxed as ordinary income. I understand that qualified dividends are not taxed as ordinary income. However, I'm having trouble finding any qualified dividend funds that people recommend looking into. I'd appreciate any suggestions. I live in Oklahoma if that matters. Thanks so much for the help!
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retired@50
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Re: What good investment pays qualified dividends?

Post by retired@50 »

michaelcarr123 wrote: Tue Jul 09, 2024 1:23 pm Currently, I have a large amount of money invested in Vanguard Federal Money Market Fund (VMFXX). Currently, VMFXX pays 5.27%. It is treated as a non-qualified/ordinary dividend. Since I am in the top tax bracket, I pay 37% tax on the dividends that are received on that fund. So, effectively I receive 3.16% return after deducting the 37% tax I pay on it since it's taxed as ordinary income. I understand that qualified dividends are not taxed as ordinary income. However, I'm having trouble finding any qualified dividend funds that people recommend looking into. I'd appreciate any suggestions. I live in Oklahoma if that matters. Thanks so much for the help!
You could use the Vanguard Municipal Money market fund,
https://investor.vanguard.com/investmen ... file/vmsxx

The trouble is the current SEC yield is 2.99% so it's basically a near equivalent return.

If you're interested in something with more risk, you could use a stock index fund like VOO or VTI. They tend to pay 95%+ of their dividends as "qualified". Keep in mind that stock is MUCH riskier than VMFXX.

Regards,
"All of us would be better investors if we just made fewer decisions." - Daniel Kahneman
increment
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Re: What good investment pays qualified dividends?

Post by increment »

If dividends are qualified, then they must have derived from stocks. What do you mean by "good investment"? Could stocks be a good investment?

(Qualified dividends are taxed too, just at lower rates.)
steadyosmosis
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Re: What good investment pays qualified dividends?

Post by steadyosmosis »

I use VTI.
Age < 59.5 | Early retired | AA 50/50 | Taxable=100% VTI | Roth IRA=52% SCHB, 38% SCHF, 10% SGOV | tIRA=63% TIPS, 37% SGOV | HSA=94% VITSX, 6% cash | Checking acct=few hundred $ for curr-mth bills.
sailaway
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Re: What good investment pays qualified dividends?

Post by sailaway »

Could you keep these funds in a tax sheltered account and use equities in your taxable account?
aristotelian
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Re: What good investment pays qualified dividends?

Post by aristotelian »

For qualified dividends you typically need to hold equities. However, equities are not a good substitute for money market funds as they have completely different risk and expected return profiles
muffins14
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Re: What good investment pays qualified dividends?

Post by muffins14 »

michaelcarr123 wrote: Tue Jul 09, 2024 1:23 pm Currently, I have a large amount of money invested in Vanguard Federal Money Market Fund (VMFXX). Currently, VMFXX pays 5.27%. It is treated as a non-qualified/ordinary dividend. Since I am in the top tax bracket, I pay 37% tax on the dividends that are received on that fund. So, effectively I receive 3.16% return after deducting the 37% tax I pay on it since it's taxed as ordinary income. I understand that qualified dividends are not taxed as ordinary income. However, I'm having trouble finding any qualified dividend funds that people recommend looking into. I'd appreciate any suggestions. I live in Oklahoma if that matters. Thanks so much for the help!
Do you want stocks or bonds or cash?

If stocks, US-based funds pay a high % of qualified dividends, so something like VTI. However they have a lot of price volatility

If bonds, something like a national muni fund, like VTEB, will give tax-exempt income. Less price volatility than stocks, but would be tax-free federally.

If cash, look at municipal money markets. Vanguard has VSMXX. Zero price volatility.
Crom laughs at your Four Winds
rossington
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Re: What good investment pays qualified dividends?

Post by rossington »

michaelcarr123 wrote: Tue Jul 09, 2024 1:23 pm Currently, I have a large amount of money invested in Vanguard Federal Money Market Fund (VMFXX). Currently, VMFXX pays 5.27%. It is treated as a non-qualified/ordinary dividend. Since I am in the top tax bracket, I pay 37% tax on the dividends that are received on that fund. So, effectively I receive 3.16% return after deducting the 37% tax I pay on it since it's taxed as ordinary income. I understand that qualified dividends are not taxed as ordinary income. However, I'm having trouble finding any qualified dividend funds that people recommend looking into. I'd appreciate any suggestions. I live in Oklahoma if that matters. Thanks so much for the help!
sailaway wrote: Tue Jul 09, 2024 1:40 pm Could you keep these funds in a tax sheltered account and use equities in your taxable account?
Hello OP,
This ^^^ makes a lot of sense for you.
"Success is going from failure to failure without loss of enthusiasm." Winston Churchill.
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