Author Topic: Not reinventing dividends  (Read 1562 times)

Rasputin

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Not reinventing dividends
« on: January 29, 2019, 07:00:09 PM »
Does it ever make sense to not reinvest dividends? In my Roth I reinvest them. However, I was thinking about not reinvesting them in my taxable account. Does it drastically slow down wealth accumulation? Thoughts?

harvestbook

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Re: Not reinventing dividends
« Reply #1 on: January 29, 2019, 07:04:55 PM »
I take the dividends from my taxable account and put them in tax-deferred spaces. I don't want my taxable to grow if I have room elsewhere.

Rasputin

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Re: Not reinventing dividends
« Reply #2 on: January 29, 2019, 07:13:48 PM »
I take the dividends from my taxable account and put them in tax-deferred spaces. I don't want my taxable to grow if I have room elsewhere.

What do you mean by tax deferred spaces? Iím still very new.

ILikeDividends

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Re: Not reinventing dividends
« Reply #3 on: January 29, 2019, 07:32:29 PM »
I take the dividends from my taxable account and put them in tax-deferred spaces. I don't want my taxable to grow if I have room elsewhere.

What do you mean by tax deferred spaces? Iím still very new.
At risk of oversimplifying it, a 401K account, or a "traditional" IRA account,  among others, are all funded with pre-tax dollars*, and any growth or dividends in those kind of accounts is not taxed.  You pay taxes on any withdrawn money when you withdraw from those accounts in the future; presumably when you'll be in a lower tax bracket.

A Roth IRA is funded with after-tax dollars, but any growth or dividends is untaxed, and when you withdraw from it in retirement the withdrawals aren't taxed either.

* There are exceptions, but I have omitted those exceptions in the interest of keeping this reply shorter than 20 pages long.  ;)
« Last Edit: January 29, 2019, 07:41:37 PM by ILikeDividends »

Rasputin

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Re: Not reinventing dividends
« Reply #4 on: January 29, 2019, 07:40:03 PM »
I take the dividends from my taxable account and put them in tax-deferred spaces. I don't want my taxable to grow if I have room elsewhere.

What do you mean by tax deferred spaces? Iím still very new.
At risk of oversimplifying it, a 401K account, or a "traditional" IRA account,  among others, are all funded with pre-tax dollars, and any growth or dividends in those kind of accounts is not taxed.  You pay taxes on any withdrawn money when you withdraw from those accounts in the future.

A Roth IRA is funded with after-tax dollars, but any growth or dividends is untaxed, and when you withdraw from it in retirement the withdrawals aren't taxed either.

So in my case youíd suggest taking the dividends from the taxable account and putting them into my Roth? Good idea.

ILikeDividends

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Re: Not reinventing dividends
« Reply #5 on: January 29, 2019, 07:44:23 PM »
So in my case youíd suggest taking the dividends from the taxable account and putting them into my Roth? Good idea.
While that certainly wouldn't be a bad idea, I would only do that if I couldn't max out all of my tax advantaged accounts with my current income; otherwise, I'd just have dividends automatically reinvested in the taxable account.  In other words, that would be a last resort, not the first preferable option. *  I'm a big fan of automatically reinvesting dividends just because it's a brain-dead-easy set-and-forget way to compound earnings.

* As usual, there's an exception to every rule.  E.g., I currently have ~$50 in cash kicking around in my Roth; which isn't enough to buy a whole share of any of the investments in that account.  I don't have any earned income, so I can't add contributions to the Roth.  So I've temporarily turned off auto reinvestment until I collect enough cash to buy a whole share; then I'll turn it back on.
« Last Edit: January 29, 2019, 07:57:01 PM by ILikeDividends »

Rasputin

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Re: Not reinventing dividends
« Reply #6 on: January 29, 2019, 08:14:57 PM »
So in my case youíd suggest taking the dividends from the taxable account and putting them into my Roth? Good idea.
While that certainly wouldn't be a bad idea, I would only do that if I couldn't max out all of my tax advantaged accounts with my current income; otherwise, I'd just have dividends automatically reinvested in the taxable account.  In other words, that would be a last resort, not the first preferable option. *  I'm a big fan of automatically reinvesting dividends just because it's a brain-dead-easy set-and-forget way to compound earnings.

* As usual, there's an exception to every rule.  E.g., I currently have ~$50 in cash kicking around in my Roth; which isn't enough to buy a whole share of any of the investments in that account.  I don't have any earned income, so I can't add contributions to the Roth.  So I've temporarily turned off auto reinvestment until I collect enough cash to buy a whole share; then I'll turn it back on.
Are you with vanguard? If so, how do you turn that off and on? Iíve been trying to figure that out.

ILikeDividends

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Re: Not reinventing dividends
« Reply #7 on: January 29, 2019, 08:22:07 PM »
Are you with vanguard? If so, how do you turn that off and on? Iíve been trying to figure that out.
No.  I was investing with Schwab for at least a decade before there even was a Vanguard.  I'm a satisfied Schwab customer, and I'm too old to switch horses now without a good reason to do so.

There are, however, a lot of Vanguard clients frequenting this forum.  No doubt you won't have to wait too long for an answer.  Alternatively, you could just call Vanguard.  I'm sure they'd be happy to tell you.
« Last Edit: January 30, 2019, 02:46:30 AM by ILikeDividends »

MustacheAndaHalf

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Re: Not reinventing dividends
« Reply #8 on: January 30, 2019, 12:38:57 AM »
I wouldn't transfer small amounts of money into your Roth IRA.  You need to respect the $5,500 / year limit, and that will be difficult if you transfer random amounts of money at random times.

I think in your Vanguard account, in the "account balances" section, there should be some way to get more detail just above and to the right of your holdings.  It scrolls with the account information - it's not part of the main menu.  And on the other screen, you can select not to reinvest dividends.  Or maybe you select cost basis method there (picking what you sell), or maybe both.

I don't reinvest dividends, because I want to invest the cash in whatever has underperformed.  Recently the U.S. has done better than international, so I'd want to take dividends from everything and invest them in international (as an example).  But that is part of "rebalancing", or bringing your assets back on target.

If you're far from retirement, you mostly need a Total US Market fund, and a Total International fund.  At Vanguard you can buy VTI (an ETF) and BND (also an ETF).

At Schwab I know about SCHB for the U.S. market... and they have SCHF for developed markets... but I don't know of a Schwab ETF that combines the two.  I think you need to buy emerging markets separately... not that big a deal, since Schwab's ETF also have low expense ratios.

stimepy

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Re: Not reinventing dividends
« Reply #9 on: January 30, 2019, 07:46:42 AM »
I wouldn't transfer small amounts of money into your Roth IRA.  You need to respect the $5,500 / year limit, and that will be difficult if you transfer random amounts of money at random times.

Don't have much to add but it's gone upt to $6,000 limit for 2019, if your still working with 2018 yes $5500 is still the most you can put in ALL IRAs,

Rasputin

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Re: Not reinventing dividends
« Reply #10 on: January 30, 2019, 04:13:02 PM »
This might be a stupid question because Iím a mental midget, but, something like VTI, which is what I have in my taxable account, what happens when you reinvest the dividends? What I mean is, with VSTAX, they buy Petipa shares, but you canít buy a partial share of an ETF, can you? So how do the dividends get reinvested?
Thanks for not flaming a newbie like me.

ILikeDividends

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Re: Not reinventing dividends
« Reply #11 on: January 30, 2019, 04:18:22 PM »
. . . you canít buy a partial share of an ETF, can you?
You can't buy partial shares.  Well, at least I can't, at Schwab, anyway.  But reinvested dividends result in fractional share deposits all the time, even with ETFs. *

* Some equities don't support automatic reinvesting.  I'm not sure what factors affect that, but that's a different question from fractional share deposits.
« Last Edit: January 30, 2019, 04:25:39 PM by ILikeDividends »

smoghat

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Re: Not reinventing dividends
« Reply #12 on: February 01, 2019, 10:48:37 PM »
Reinvest dividends? Of course not! They are my primary source of income! There use I might have to work. Iíd prefer not to draw down shares, although I do from time to time... I only feel good when overall capital goes up though..

marty998

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Re: Not reinventing dividends
« Reply #13 on: February 02, 2019, 02:41:12 PM »
. . . you canít buy a partial share of an ETF, can you?
You can't buy partial shares.  Well, at least I can't, at Schwab, anyway.  But reinvested dividends result in fractional share deposits all the time, even with ETFs. *

* Some equities don't support automatic reinvesting.  I'm not sure what factors affect that, but that's a different question from fractional share deposits.

What is this fractional shares concept???? I know there are fractional units in managed funds, but we don't get fractional shares here.

You dividend reinvestment here is rounded down to the nearest share.... anything leftover is carried forward to the next dividend.

ILikeDividends

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Re: Not reinventing dividends
« Reply #14 on: February 02, 2019, 03:49:47 PM »
. . . you canít buy a partial share of an ETF, can you?
You can't buy partial shares.  Well, at least I can't, at Schwab, anyway.  But reinvested dividends result in fractional share deposits all the time, even with ETFs. *

* Some equities don't support automatic reinvesting.  I'm not sure what factors affect that, but that's a different question from fractional share deposits.

What is this fractional shares concept???? I know there are fractional units in managed funds, but we don't get fractional shares here.

You dividend reinvestment here is rounded down to the nearest share.... anything leftover is carried forward to the next dividend.

Not entirely sure whether "here" is Australia or a different brokerage (or both).  I'm in the USA, and my broker is Schwab.  If I had 100 shares of a $50 stock that pays a 25 cent dividend, the next trading day, after getting paid the dividend, my share balance would be 100.5 shares *; literally, a fraction of a share.  No rounding until you get out past 4 digits to the right of the decimal point.**

The next time that stock pays a dividend, that fractional share will also pay a fractional dividend.  I presume that fractional dividend will be rounded to the nearest cent, but to be honest, I've never bothered to check.

See: https://www.investopedia.com/terms/f/fractionalshare.asp

This article says this magic is managed at the brokerage by accumulating fractions of a share across multiple clients so they can be sold as whole shares on the exchange.  If you are using a small broker, I would suppose this might not be a service they offer regardless of your broker's country.

* Example assumes a static market price for sake of simplicity.

** It's possible they internally account for share fractions with even greater precision, and only round the figure for display purposes; though I don't know that to be the case.  Same could be true, hypothetically speaking, for fractional dividends that result in fractional cents.  Just speaking with my old IT propeller beanie cap on. ;)  But just because it's possible doesn't mean it's a fact.

Edit to add: I just checked to confirm.  I don't have even a single holding that doesn't have a fractional share component.  Even my MM fund has a fractional component.
« Last Edit: February 02, 2019, 04:38:59 PM by ILikeDividends »

MishMash

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Re: Not reinventing dividends
« Reply #15 on: February 02, 2019, 04:46:10 PM »
So in my case youíd suggest taking the dividends from the taxable account and putting them into my Roth? Good idea.
While that certainly wouldn't be a bad idea, I would only do that if I couldn't max out all of my tax advantaged accounts with my current income; otherwise, I'd just have dividends automatically reinvested in the taxable account.  In other words, that would be a last resort, not the first preferable option. *  I'm a big fan of automatically reinvesting dividends just because it's a brain-dead-easy set-and-forget way to compound earnings.

* As usual, there's an exception to every rule.  E.g., I currently have ~$50 in cash kicking around in my Roth; which isn't enough to buy a whole share of any of the investments in that account.  I don't have any earned income, so I can't add contributions to the Roth.  So I've temporarily turned off auto reinvestment until I collect enough cash to buy a whole share; then I'll turn it back on.
Are you with vanguard? If so, how do you turn that off and on? Iíve been trying to figure that out.

My account--account maintenance--under account profile Holding level dividend and capital gains elections then select the small link at the top to change elections.

The Guru

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Re: Not reinventing dividends
« Reply #16 on: February 04, 2019, 08:45:55 PM »
I wouldn't transfer small amounts of money into your Roth IRA.  You need to respect the $5,500 / year limit, and that will be difficult if you transfer random amounts of money at random times.

Don't have much to add but it's gone upt to $6,000 limit for 2019, if your still working with 2018 yes $5500 is still the most you can put in ALL IRAs,

....UNLESS you're over 55 in which case you can invest an additional "catch-up" $1,000. (ergo, $6500 max for 2018, $7,000 for 2019)

Rasputin

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Re: Not reinventing dividends
« Reply #17 on: February 04, 2019, 10:23:57 PM »
I wouldn't transfer small amounts of money into your Roth IRA.  You need to respect the $5,500 / year limit, and that will be difficult if you transfer random amounts of money at random times.

Don't have much to add but it's gone upt to $6,000 limit for 2019, if your still working with 2018 yes $5500 is still the most you can put in ALL IRAs,

....UNLESS you're over 55 in which case you can invest an additional "catch-up" $1,000. (ergo, $6500 max for 2018, $7,000 for 2019)

Iím only in my 40s. Highly unlikely Iíll retire a millionaire.

Car Jack

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Re: Not reinventing dividends
« Reply #18 on: February 05, 2019, 06:39:09 AM »
Iím only in my 40s. Highly unlikely Iíll retire a millionaire.

Why is that?  In your 40's is plenty of time to hit 2 commas.

Rasputin

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Re: Not reinventing dividends
« Reply #19 on: February 05, 2019, 07:24:29 AM »
Iím only in my 40s. Highly unlikely Iíll retire a millionaire.

Why is that?  In your 40's is plenty of time to hit 2 commas.

Iím trying.

frugalnacho

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Re: Not reinventing dividends
« Reply #20 on: February 06, 2019, 07:28:24 AM »
I take the dividends from my taxable account and put them in tax-deferred spaces. I don't want my taxable to grow if I have room elsewhere.

Why? If you don't make a ton of money and have trouble filling up all of your tax-deferred accounts with money from your pay checks then you are likely in 0% tax bracket for dividends and LTCG.  If that's the case then it's much better to have money in a taxable account than a tax-deferred account.  If you make enough money to phase you out of the 0% tax bracket for dividends and LTCG then you should be easily filling up your tax-deferred accounts and have left over money to invest in a taxable account, making the entire situation moot. 

I want my taxable to grow.  I would greatly prefer to have money in a taxable account rather than a tax deferred account.  That money is either already post-tax money, or will be counted as LTCG which is greatly preferable to pre-tax withdraws that are counted as regular income.

Rasputin

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Re: Not reinventing dividends
« Reply #21 on: February 06, 2019, 08:08:33 AM »
I take the dividends from my taxable account and put them in tax-deferred spaces. I don't want my taxable to grow if I have room elsewhere.

Why? If you don't make a ton of money and have trouble filling up all of your tax-deferred accounts with money from your pay checks then you are likely in 0% tax bracket for dividends and LTCG.  If that's the case then it's much better to have money in a taxable account than a tax-deferred account.  If you make enough money to phase you out of the 0% tax bracket for dividends and LTCG then you should be easily filling up your tax-deferred accounts and have left over money to invest in a taxable account, making the entire situation moot. 

I want my taxable to grow.  I would greatly prefer to have money in a taxable account rather than a tax deferred account.  That money is either already post-tax money, or will be counted as LTCG which is greatly preferable to pre-tax withdraws that are counted as regular income.

Maybe Iím doing things wrong. I max out my Roth, so I put extra into the taxable. Only have a few hundred in it now. VTI.

Boofinator

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Re: Not reinventing dividends
« Reply #22 on: February 06, 2019, 08:13:46 AM »
I don't reinvest dividends in my taxable account because it adversely affects tax loss harvesting. I also don't have the same funds in my taxable accounts and IRAs for the same reason. Vanguard makes it easy to send dividends from taxable to my bank account, which I then use to fund the next transaction.

frugalnacho

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Re: Not reinventing dividends
« Reply #23 on: February 06, 2019, 08:47:56 AM »
I take the dividends from my taxable account and put them in tax-deferred spaces. I don't want my taxable to grow if I have room elsewhere.

Why? If you don't make a ton of money and have trouble filling up all of your tax-deferred accounts with money from your pay checks then you are likely in 0% tax bracket for dividends and LTCG.  If that's the case then it's much better to have money in a taxable account than a tax-deferred account.  If you make enough money to phase you out of the 0% tax bracket for dividends and LTCG then you should be easily filling up your tax-deferred accounts and have left over money to invest in a taxable account, making the entire situation moot. 

I want my taxable to grow.  I would greatly prefer to have money in a taxable account rather than a tax deferred account.  That money is either already post-tax money, or will be counted as LTCG which is greatly preferable to pre-tax withdraws that are counted as regular income.

Maybe Iím doing things wrong. I max out my Roth, so I put extra into the taxable. Only have a few hundred in it now. VTI.

It depends on your personal situation and what your current tax rate is and what you expect your future tax rate to be.   I make about $95k/yr, and am married and my wife makes $0.  I put as much money as I can into 401k, tIRA, and HSA accounts to minimize my taxes right now.  I expect when I retire that my income will be significantly lower than right now, and my tax bracket will be lower as well, so I'm trying to defer as much taxes as possible.  In the past few years we have managed to get our federal income tax down to $0 or near $0 (I made less money in previous years than I do today), at which point we have utilized Roth instead of tIRA. 

Everything I own is either VTSAX (60%) or VTIAX (40%) [or equivalent].  I don't mess around with tax loss harvesting either.  Seems like a lot of hassle for very minimal gain for my situation.  I haven't finalized my 2018 taxes just yet, but it looks like my federal tax liability is going to be around $200.   If I wasn't constantly straddling the tax saver's credit cliff I would actually be trying to harvest capital gains in my taxable account.   I suspect that this year, and moving forward, I will be getting phased out of the tax saver's credit and will be trying to harvest taxable gains to the extent they will still be in the 0% tax bracket.

Rasputin

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Re: Not reinventing dividends
« Reply #24 on: February 06, 2019, 08:53:02 AM »
I take the dividends from my taxable account and put them in tax-deferred spaces. I don't want my taxable to grow if I have room elsewhere.

Why? If you don't make a ton of money and have trouble filling up all of your tax-deferred accounts with money from your pay checks then you are likely in 0% tax bracket for dividends and LTCG.  If that's the case then it's much better to have money in a taxable account than a tax-deferred account.  If you make enough money to phase you out of the 0% tax bracket for dividends and LTCG then you should be easily filling up your tax-deferred accounts and have left over money to invest in a taxable account, making the entire situation moot. 

I want my taxable to grow.  I would greatly prefer to have money in a taxable account rather than a tax deferred account.  That money is either already post-tax money, or will be counted as LTCG which is greatly preferable to pre-tax withdraws that are counted as regular income.

Maybe Iím doing things wrong. I max out my Roth, so I put extra into the taxable. Only have a few hundred in it now. VTI.

It depends on your personal situation and what your current tax rate is and what you expect your future tax rate to be.   I make about $95k/yr, and am married and my wife makes $0.  I put as much money as I can into 401k, tIRA, and HSA accounts to minimize my taxes right now.  I expect when I retire that my income will be significantly lower than right now, and my tax bracket will be lower as well, so I'm trying to defer as much taxes as possible.  In the past few years we have managed to get our federal income tax down to $0 or near $0 (I made less money in previous years than I do today), at which point we have utilized Roth instead of tIRA. 

Everything I own is either VTSAX (60%) or VTIAX (40%) [or equivalent].  I don't mess around with tax loss harvesting either.  Seems like a lot of hassle for very minimal gain for my situation.  I haven't finalized my 2018 taxes just yet, but it looks like my federal tax liability is going to be around $200.   If I wasn't constantly straddling the tax saver's credit cliff I would actually be trying to harvest capital gains in my taxable account.   I suspect that this year, and moving forward, I will be getting phased out of the tax saver's credit and will be trying to harvest taxable gains to the extent they will still be in the 0% tax bracket.
Right now I have the dividends set to reinvest in both accounts. The taxable only has a handful of shares, but when the dividends become more, itíd be nice to have a little bonus of cash every quarter to buy drugs with, or a new pair of shoes, etc.
« Last Edit: February 06, 2019, 10:48:58 AM by Rasputin »

effigy98

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Re: Not reinventing dividends
« Reply #25 on: February 06, 2019, 08:57:20 AM »
I take the cash in taxable and use them to re balance back to target asset allocations. I reinvest them in tax sheltered accounts.

I plan on using the taxable dividends in the future as my paycheck replacement.

frugalnacho

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Re: Not reinventing dividends
« Reply #26 on: February 06, 2019, 09:15:53 AM »
I take the cash in taxable and use them to re balance back to target asset allocations. I reinvest them in tax sheltered accounts.

I plan on using the taxable dividends in the future as my paycheck replacement.

I'm in the accumulation phase so I have a huge influx of cash to rebalance accounts with.  If that isn't enough to do it I check all my accounts and rebalance back to my target AA on my name day each year.  Once I retire the dividend checks will be my new paycheck, at least partially.