Author Topic: VTSAX and ITOT Non-Qualified Dividends  (Read 1062 times)

lostmonkey007

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VTSAX and ITOT Non-Qualified Dividends
« on: January 04, 2018, 06:05:34 PM »
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« Last Edit: February 16, 2018, 11:07:09 AM by lostmonkey007 »

MDM

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Re: VTSAX and ITOT Non-Qualified Dividends
« Reply #1 on: January 04, 2018, 07:29:19 PM »

secondcor521

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Re: VTSAX and ITOT Non-Qualified Dividends
« Reply #2 on: January 04, 2018, 08:03:44 PM »
See Vanguard year end distributions - updated estimates - Bogleheads.org for discussion on this.

So VTI / VTSAX according to the link had 94% qualified dividends. And the total dividend paid out in December was $0.33 per share.  I held about 530 shares of VTSAX and was hit with 530 shares * $0.33 dividend / share = $174 in taxable dividends.  How come I was hit with entire $174 as taxable, shouldn't it only be (1-94%) = 6% of the $174?

Or does Vanguard only reflect that adjustment later in 1099 tax forms?

You're mixing up terms.  All dividends in your taxable accounts are taxable.  Dividends can be either ordinary or qualified; the latter are taxed preferentially.  Vanguard will report the total amount of dividends to you in box 1a on the 1099-DIV form they provide, and will indicate a slightly smaller number of the amount that is qualified in box 1b.  In your case the numbers will be something like $174 and $165, assuming you've done the math correctly.

These numbers will carry over to line 9a and 9b on your form 1040, respectively.  You or your software will then fill out the appropriate worksheet and if you know where to look you can see the preferential tax treatment being applied.

When you originally posted this, I went to look at my Vanguard taxable account and I couldn't see anywhere where they have identified the breakdown between qualified and ordinary dividends yet.  In other words, I don't know on what basis you think that the VTSAX dividends you received were not qualified.
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MDM

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Re: VTSAX and ITOT Non-Qualified Dividends
« Reply #3 on: January 04, 2018, 08:03:58 PM »
See Vanguard year end distributions - updated estimates - Bogleheads.org for discussion on this.

So VTI / VTSAX according to the link had 94% qualified dividends. And the total dividend paid out in December was $0.33 per share.  I held about 530 shares of VTSAX and was hit with 530 shares * $0.33 dividend / share = $174 in taxable dividends.  How come I was hit with entire $174 as taxable, shouldn't it only be (1-94%) = 6% of the $174?

Or does Vanguard only reflect that adjustment later in 1099 tax forms?
VTSAX dividends are always taxable.  It's just that qualified dividends qualify for lower tax rates than non-qualified dividends.

secondcor521

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Re: VTSAX and ITOT Non-Qualified Dividends
« Reply #4 on: January 05, 2018, 08:41:39 AM »
See Vanguard year end distributions - updated estimates - Bogleheads.org for discussion on this.

So VTI / VTSAX according to the link had 94% qualified dividends. And the total dividend paid out in December was $0.33 per share.  I held about 530 shares of VTSAX and was hit with 530 shares * $0.33 dividend / share = $174 in taxable dividends.  How come I was hit with entire $174 as taxable, shouldn't it only be (1-94%) = 6% of the $174?

Or does Vanguard only reflect that adjustment later in 1099 tax forms?
VTSAX dividends are always taxable.  It's just that qualified dividends qualify for lower tax rates than non-qualified dividends.

Got it.

And my apologies to you and secondcor521 for misconstruing taxable in my Vanguard summary.  However, take a look at the attachment of my Fidelity summary.  Clearly states non-qualified.

Should I call Fidelity?

No worries.  I don't have any ITOT at Fidelity, so I don't know how things work there, but I agree with you that the detail report you show looks like they are saying it is non-qualified, but a Google search shows that ITOT did distribute a large percentage of their dividends as qualified in 2016 - presumably it will behave similarly in 2017.

You could call and ask what's up.  My guess would be that the report is wrong/misleading and the actual Fidelity tax forms will be correct.  They should still fix the report IMHO.
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terran

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Re: VTSAX and ITOT Non-Qualified Dividends
« Reply #5 on: January 29, 2018, 09:23:33 AM »
Fidelity tends to list all dividends as unqualified at first, then it switches at some point.

Sort of related, and possibly silly question: does anyone know if when you buy the fund compared to when dividends are distributed matters? Or does it only matter when the fund bought the individual security compared to when the individual security issued a dividend? That is, do my individual actions effect whether my dividends from a mutual fund will be qualified vs unqualified, or are the dividends received by everyone who invests in the fund qualified or unqualified in the same proportion?

secondcor521

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Re: VTSAX and ITOT Non-Qualified Dividends
« Reply #6 on: January 29, 2018, 10:26:23 AM »
Fidelity tends to list all dividends as unqualified at first, then it switches at some point.

Sort of related, and possibly silly question: does anyone know if when you buy the fund compared to when dividends are distributed matters? Or does it only matter when the fund bought the individual security compared to when the individual security issued a dividend? That is, do my individual actions effect whether my dividends from a mutual fund will be qualified vs unqualified, or are the dividends received by everyone who invests in the fund qualified or unqualified in the same proportion?

In theory I believe it does.  In theory I believe you're supposed to adjust for the fact that you may have not owned the mutual fund (and thus the underlying securities) long enough to qualify for qualified dividends.

In practice I believe the mutual fund assumes you've owned the fund long enough and they report dividends as qualified if they owned the securities long enough to qualify.  In practice I believe nobody adjusts the numbers on their 1099s and just goes with what the mutual fund reports to the IRS.
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secondcor521

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Re: VTSAX and ITOT Non-Qualified Dividends
« Reply #7 on: January 29, 2018, 02:10:56 PM »
EDIT: echoing secondcor521's point, perhaps, per strict rule of IRS law, you shouldn't receive qualified treatment om dividends coming from securities you haven't held long term (i.e. >12 months).  However, it seems like the mutual fund does seem to just give you some form of retroactive time credit of having held the underling securities long enough (regardless of how long you truly have) to receive qualified dividend treatment. 

Brings up a key question, if you were just buying individual securities (and not via mutual fund/etf), do you need to own it for >12 months before you're able to receive qualified dividend treatment?

You're mixing up the terms "long term" and "qualified".  They're two different things even though they both apply to the taxation of securities.

Here is the link to the IRS site which defines qualified dividends.  Basically you have to own the security for 60 days around the time of the dividend:

https://www.irs.gov/publications/p550#en_US_2016_publink100010075

It appears from my casual review of the above text that when talking about mutual funds, you treat it as the actual security (as opposed to the investments inside the mutual fund).  So if you own the mutual fund for 60 days around the dividend from the mutual fund, then your dividend is qualified.  So my post above was wrong and should be ignored, and you can safely report on your taxes dividends as qualified if they show up that way on your tax statements from the mutual fund company.  (Ignoring for now the miniscule chance that the mutual fund company makes a mistake on the 1099.)
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grantmeaname

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Re: VTSAX and ITOT Non-Qualified Dividends
« Reply #8 on: February 02, 2018, 03:32:35 AM »
if you own the mutual fund for 60 days around the dividend from the mutual fund, then your dividend is qualified.
I think this is still wrong. If that was true you would never be able to get 94% QDI, 6% NQDI out of a fund that you had held more than 60 days. I believe it’s the holding period of the fund in the securities (and other restrictions such as whether the underlying securities are in treaty countries and have treaty access) which determines the QDI treatment of an underlying dividend, and the nature of the dividends as QDI/NQDI paints the distributions out of the fund accordingly.

secondcor521

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Re: VTSAX and ITOT Non-Qualified Dividends
« Reply #9 on: February 02, 2018, 10:51:51 AM »
if you own the mutual fund for 60 days around the dividend from the mutual fund, then your dividend is qualified.
I think this is still wrong. If that was true you would never be able to get 94% QDI, 6% NQDI out of a fund that you had held more than 60 days. I believe itís the holding period of the fund in the securities (and other restrictions such as whether the underlying securities are in treaty countries and have treaty access) which determines the QDI treatment of an underlying dividend, and the nature of the dividends as QDI/NQDI paints the distributions out of the fund accordingly.

I see what you're saying.  In addition to the character of the underlying dividend, it does also matter whether you held the mutual fund itself for ~60 days around the dividend - see Example 3 in the link I provided where it says "However, you sold the 10,000 shares on August 8, 2016. You have no qualified dividends from ABC Mutual Fund because you held the ABC Mutual Fund stock for less than 61 days."
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