Author Topic: Accumulating vs. distributing, advantages and disadvantages?  (Read 3387 times)

shimrod

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Accumulating vs. distributing, advantages and disadvantages?
« on: March 22, 2016, 05:28:51 AM »
Other things equal, what are the advantages and disadvantages of ETFs that reinvest vs. those that distribute dividends?

For example, I understand that these two are much the same thing, except that difference, correct?

https://www.justetf.com/de-en/etf-profile.html?isin=IE00B4L5Y983
https://www.justetf.com/de-en/etf-profile.html?isin=IE00B0M62Q58

It's obvious that if you're still investing, it's more convenient to have the dividends reinvested automatically, and if you're living off the returns it's more convenient to have them distributed rather than having to sell manually.

Dividends might be taxed differently than capital gains.

Are there other advantages and disadvantages to either method, and which would you recommend?

WerKater

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Re: Accumulating vs. distributing, advantages and disadvantages?
« Reply #1 on: March 22, 2016, 10:35:30 AM »
In principle you are perfectly right.

Which country are you in?
 For example in Germany, a dividend received by a fund and reinvested within the fund (hence never distributed to the investor) is taxed the same as a distributed dividend (*). That means that you often need to declare it in your tax return (usually not necessary for distributed dividends since those will be taxed automatically as they are paid to you) and you actually need to have the money to pay the ensuing tax bill.
This tends to make reinvesting funds a bit of an administrative headache in Germany. It's not really bad, you understand, but it is more complicated than with a distributing fund.

(*) I am wondering how this is in other countries. Where are all of you, and do you have to pay taxes on reinvested dividends in the year in which the fund reinvests them? [shimrod, if you think this takes this thread too much off-topic, please just tell me and we will move this question to another thread]

Spitfire

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Re: Accumulating vs. distributing, advantages and disadvantages?
« Reply #2 on: March 22, 2016, 11:50:52 AM »
In the U.S. dividends are taxed the same whether you distribute them or reinvest. If you reinvest it adds to the basis so you get less of a tax gain when you sell it.

In your example, the distributing one has a much higher expense ratio for some reason.

shimrod

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Re: Accumulating vs. distributing, advantages and disadvantages?
« Reply #3 on: March 22, 2016, 07:01:45 PM »
Which country are you in?
Croatia.

Quote
For example in Germany, a dividend received by a fund and reinvested within the fund (hence never distributed to the investor) is taxed the same as a distributed dividend (*). That means that you often need to declare it in your tax return (usually not necessary for distributed dividends since those will be taxed automatically as they are paid to you) and you actually need to have the money to pay the ensuing tax bill.
This tends to make reinvesting funds a bit of an administrative headache in Germany. It's not really bad, you understand, but it is more complicated than with a distributing fund.
I can't tell whether that's the case for Croatia. It seems that dividends are taxed, but not if they're reinvested to increase company share capital, in case of company dividends (if I'm translating the terms correctly). Not sure if this is applicable to funds.

WerKater

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Re: Accumulating vs. distributing, advantages and disadvantages?
« Reply #4 on: March 23, 2016, 12:01:27 AM »
In the U.S. dividends are taxed the same whether you distribute them or reinvest. If you reinvest it adds to the basis so you get less of a tax gain when you sell it.
OK, that sounds basically the same as in Germany.

Quote from: Spitfire
In your example, the distributing one has a much higher expense ratio for some reason.
Spitfire is right. So in this case, shimrod, I would go with the accumulating one (assuming the information on the website is correct).