{"id":2250,"date":"2019-09-19T12:27:50","date_gmt":"2019-09-19T17:27:50","guid":{"rendered":"https:\/\/www.brandonrenfro.com\/?p=2250"},"modified":"2022-07-14T14:39:54","modified_gmt":"2022-07-14T14:39:54","slug":"are-reinvested-dividends-taxable","status":"publish","type":"post","link":"https:\/\/belongingwealth.com\/are-reinvested-dividends-taxable\/","title":{"rendered":"Are Reinvested Dividends Taxable?"},"content":{"rendered":"\r\n
If you hold a portfolio that contains stocks or equity funds, whether they are mutual funds or ETFs, then chances are you receive dividends. You probably reinvest at least a portion of them. But are reinvested dividends taxable?<\/p>\r\n\r\n\r\n\r\n
Reinvested dividends are generally taxable like any other dividend but that doesn’t necessarily mean you’ll incur a tax liability. A few caveats will help you understand whether YOUR<\/strong> dividends are taxable, and how they are taxed if they are.<\/p>\r\n\r\n\r\n\r\n When you receive dividends in a portfolio a common practice is to simply reinvest those dividends. This is especially true when you are still saving and haven’t started taking distributions from your account.<\/p>\r\n\r\n\r\n\r\n This is often still true for a portion of your dividends in retirement, as you may not need to withdraw all of them. While dividends can be a key part of retirement income, there are some often-ignored risks of relying on dividends to provide the bulk of your income in retirement.<\/a> For that reason, you may want to reinvest the dividends and consider a more comprehensive distribution strategy.<\/p>\r\n\r\n\r\n\r\n Reinvesting dividends is smart over the long-term as dividends are a key driver of long-term investment growth. Don’t make the mistake of thinking dividends are an “extra” return.<\/p>\r\n\r\n\r\n\r\n When you select investments within an investment account you’ll usually have the ability to select an option that allows you to reinvest the dividends. This sets up an automatic reinvestment so that you don’t have to go into your account and manually do it every time. You don’t even have to know that you received the dividends since it is automatic. When this arrangement is made directly with the issuer it is known as DRIP or dividend reinvestment plan.<\/p>\r\n\r\n\r\n\r\n Yes. Even if you elect to have those dividends automatically reinvested, the receipt of dividends is a taxable event<\/strong><\/em>. However, there are two important items to consider. You may not owe any tax at all, and the amount you do owe depends on the type of dividend.<\/p>\r\n\r\n\r\n\r\n Consider:<\/p>\r\n\r\n\r\n\r\n If your dividends meet the criteria to become qualified dividends then you can avoid paying tax at your income tax rate. Instead your tax bill is based on the more favorable long-term capital gains rates of either 0%, 15%, or 20%.<\/p>\r\n\r\n\r\n\r\n So what is a qualified dividend?<\/p>\r\n\r\n\r\n\r\nReinvested Dividends<\/h2>\r\n\r\n\r\n\r\n
Are Reinvested Dividends Taxable?<\/h2>\r\n\r\n\r\n\r\n
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Qualified Dividends<\/h2>\r\n\r\n\r\n\r\n