The Money Mustache Community
Learning, Sharing, and Teaching => Investor Alley => Topic started by: engineerjourney on November 26, 2013, 02:59:43 PM
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So I am going to be opening a taxable account because my husband and I will be maxing our 401Ks, Roth IRAs and HSAs next year. I have some money now to contribute but was thinking of just waiting until Jan 2014 to open the account and contribute for tax reasons. I didn't want to complicate things for one month of this year and from what I have read any dividends received this year would not be qualified and would be taxed as income... Am I being stupid by waiting? I am not trying to market time.. more like simplify for taxes.. but maybe I am misreading things and should go ahead and do it. Any thoughts?
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How much would you expect in dividends? At lower levels it is a negligible effect on taxes.
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It won't really be that complicated. If you earn any dividends between now and the end of the year, your brokerage will send you a statement telling you how much you earned. You report that income on your taxes as Dividend Income. That's it. Pretty simple.
And unless you are sitting on a shit ton of cash to invest, your dividend amount is going to be pretty meaningless to your taxes. For example, while I'm not invested in dividend specific stocks, I do receive dividends as part of holding index funds. My $80k account returned less than $1K worth of dividend income for the whole year.
I'm guessing you have less to invest than this, and you're only investing for a month, so I see no reason not to get started now.
(also, my index funds pay out quarterly but on 1/31, 4/30, 7/31, & 10/31 for whatever reason, so I'm done earning dividends for the calendar year already. If you're still concerned, look up the dividend schedule on what you want to invest in, as you could easily invest starting today and not see a dividend until 2014.)
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Thanks guys. I had a feeling I was being stupid, haha. For some reason it was so easy to up the contributions to the 401K and HSA and just max the Roth but its been much harder to pull the trigger on the taxable account. I keep thinking I somehow need this money on hand when thats not the case since its way more than my emergency fund needs to be. And yeah the amount it really not going to make much when it comes to dividends. Over thinking things once again...
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Your dividends for the year should be qualified. The rules as I remember them work like this: if you hold the stock for 60 days of the 121 day period surrounding the ex dividend date, the dividend is qualified. So you could buy the day before the ex dividend date, and as long as you hold the shares for the rest of the testing period you'd be fine.
The only thing that makes it tricky is that your brokerage can't know for sure if your dividends are qualified at the time they prepare your tax forms. I think they just assume they are so if you sell anything in January/February be careful.
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Your dividends for the year should be qualified. The rules as I remember them work like this: if you hold the stock for 60 days of the 121 day period surrounding the ex dividend date, the dividend is qualified.
Oh wow, you are right. I totally misread that rule to be 60 days of the time BEFORE the dividend is issued, which is wrong. Thanks fixer!! Guess I am going to open the taxable account this weekend! wohoo
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And if you end up paying tons of taxes, that means you make a killing ... can't complain about that.
I wish that you eventually will end up getting so much dividends that your tax bill becomes huge!
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I wish that you eventually will end up getting so much dividends that your tax bill becomes huge!
hahaha, I wish that too!! Same wish back at you!
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The advice I follow is that, as a rule, "Don't buy the dividend." It isn't the complication - it is the tax itself. By waiting until the ex-dividend date, you have a chance of buying lower and avoiding the tax on the dividend itself, allowing you to invest that money (what would have been spent on tax on the dividend) to increase the investment itself.
I consider "Don't buy the dividend" to be the only legitimate exception to "Don't try to time the market."