Author Topic: VTSAX and ITOT Non-Qualified Dividends  (Read 361 times)

lostmonkey007

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VTSAX and ITOT Non-Qualified Dividends
« on: January 04, 2018, 06:05:34 PM »
I bought a good amount of VTSAX and ITOT over the course of 2017.  Looks like all my dividends realized on them are currently showing as non-qualified dividends in the tax summary sections of my Vanguard and Fidelity accounts.  I realized about $500 worth of non-qualified dividends on a ~$20k average-across-the-year VTSAX position.  And ~$900 worth of non-qualified dividends on a ~$35k average-across-the-year ITOT position.

I thought VTSAX and ITOT primarily generated qualified dividends.  What gives?

MDM

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

lostmonkey007

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Re: VTSAX and ITOT Non-Qualified Dividends
« Reply #2 on: January 04, 2018, 07:46:12 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?

secondcor521

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Re: VTSAX and ITOT Non-Qualified Dividends
« Reply #3 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 #4 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.

lostmonkey007

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Re: VTSAX and ITOT Non-Qualified Dividends
« Reply #5 on: January 04, 2018, 09:22:50 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.

I'm an idiot. This is great. Thank you.

The $165 (or 94%) will get the qualified treatment (my cursory read of this suggests I'll get hit with my 15% LTCG rate).  And the $9 (or 6%) will get the non-qualified/ordinary treatment (my cursory read once again tells me I'll get hit with my marginal fed tax bracket of 28%, no state/local taxes for me).

lostmonkey007

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Re: VTSAX and ITOT Non-Qualified Dividends
« Reply #6 on: January 04, 2018, 09:26:16 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.

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.

lostmonkey007

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Re: VTSAX and ITOT Non-Qualified Dividends
« Reply #7 on: January 04, 2018, 09:27:23 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.

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?

secondcor521

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Re: VTSAX and ITOT Non-Qualified Dividends
« Reply #8 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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lostmonkey007

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Re: VTSAX and ITOT Non-Qualified Dividends
« Reply #9 on: January 05, 2018, 10:33:29 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.

Thanks, again!  I'm pretty sure my mind saw non-qualified in Fidelity's (hopefully preliminary, to be updated) summary and mistakenly assumed I was getting hit with same treatment on my taxable Vanguard VTSAX held positions. 

I called Fidelity CS... ,sorry to say this, but they were useless.  The guy put me on hold for 10 minutes to "research" and came back to tell me that I have no control over how a fund distributes qualified vs. non-qualified dividends.  I agree with this statement but it's an incomplete/almost extraneous point in this specific context.  Pretty clear when 100% of my ITOT (a general market-tracking index) dividends show up as non-qualified that something must be amiss.  Go figure.  I'll just wait for the 1099 which should come by end of this month (leaving enough time for any required revisions prior to Tax Day).