Traditional 401k and Rollover IRA Dividends at Payout

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bmelikia
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Traditional 401k and Rollover IRA Dividends at Payout

Post by bmelikia » Wed Dec 06, 2017 10:48 am

Age 33

My company gives employees the opportunity to contribute to either a Traditional 401k or a Roth 401k.

In addition to contributing the max to my Roth IRA (5,500) - I'm currently contributing to the Roth 401k (about 10k/annually) - but that got me thinking. . .

1) Regarding Traditional 401ks and Rollover Traditional IRAs at age 59.5 or older - can you elect to have the dividends that are created within the Traditional 401k/Rollover IRA paid out directly to you?

(Ex: A person owns x,xxx shares of a fund at age 60 and that fund is going to payout a 2.0% dividend in December - can you elect to have that dividend set to payout directly into your checking/savings account?)

2) If yes, then how are those dividends taxed? Are they taxed as ordinary income or as qualified dividends?

Thank you for your help
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BolderBoy
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Re: Traditional 401k and Rollover IRA Dividends at Payout

Post by BolderBoy » Wed Dec 06, 2017 12:08 pm

bmelikia wrote:
Wed Dec 06, 2017 10:48 am
1) Regarding Traditional 401ks and Rollover Traditional IRAs at age 59.5 or older - can you elect to have the dividends that are created within the Traditional 401k/Rollover IRA paid out directly to you?
I think the answer is 'yes'.
2) If yes, then how are those dividends taxed? Are they taxed as ordinary income or as qualified dividends?
The former.
"Never underestimate one's capacity to overestimate one's abilities" - The Dunning-Kruger Effect

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Earl Lemongrab
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Re: Traditional 401k and Rollover IRA Dividends at Payout

Post by Earl Lemongrab » Wed Dec 06, 2017 12:34 pm

At age 59-1/2 the plan is allowed but not required to permit distribution of employee deferrals or Roth contributions. There's nothing special about dividends for most types of funds. I supposed the plan could set that up, but there really wouldn't be any point. The tax treatment is ordinary income, so no preferred rate. You could just take a distribution of that size.

If the 401(k) contains an employee stock ownership plan (ESOP) option for owning company stock, then the dividends can be distributed without penalty as they are paid at any age. They are still taxed at ordinary rates.
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