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Tax handling of dividends distributed as cash vs reinvested dividends

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  • Tax handling of dividends distributed as cash vs reinvested dividends

    In my current situation, mutual funds in both my Roth IRA and taxable account are distributing their dividends as cash. The reason I elected for this instead of automatically re-investing the dividends is so that I can choose where to reinvest the dividend cash in order to help rebalance my asset allocation. My question is, is there a difference on taxation of dividends that are distributed as cash vs automatically reinvested into the originating fund? I recognize that the taxation of dividends doesn't matter for my Roth IRA since everything grows tax-free.

    Just to clarify, I'm not asking about the difference in taxation between "qualified" dividends and "non-qualified" dividends. My understanding is that qualified dividends are subject to long-term capital gains tax and non-qualified dividends are subject to ordinary income tax.

  • #2
    It doesnt make a difference. A dividend is always given as cash, and then sometimes reinvested per your choice, which is separate and not reported as part of the taxes (until later as a basis). So the fact you've elected to not reinvest doesnt matter as the distribution of the cash dividend is all they see. There are a few programs that give scrip or actual shares instead of cash, but this is rare.

    Just got done doing all my 1099-b's, etc...what a pain. Next year likely to be much worse.

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    • #3
      No difference. Same tax bill. I do what you do for what it's worth.
      Helping those who wear the white coat get a fair shake on Wall Street since 2011

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      • #4
        No difference for tax purposes.

        Unlike others here, I automatically reinvest dividends from socks and mutual funds unless the charge to reivest the dividends i shigh ( in case of stocks). I do this since I am a procrastinator and will sit on the cash dividends for a long time if left to me.

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        • #5
          Got it, thanks everyone for the responses.




          No difference. Same tax bill. I do what you do for what it’s worth.
          Click to expand...


          Actually it is nice to know how you handle things, thanks for commenting.

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