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Learning, Sharing, and Teaching => Taxes => Topic started by: MidwestnRich on July 23, 2017, 08:22:36 PM

Title: Do IRA dividend payouts count as withdrawal?
Post by: MidwestnRich on July 23, 2017, 08:22:36 PM
Very very young moustachian here. (Peach fuzz sort of 'stache at this point.)

My question is: If I have an IRA at early retirement (either Roth or Traditional) and my holdings earn dividends. If I were to choose to keep those dividends rather than re-invest in the IRA (is that even possible?), does that count as a withdrawal?  And is it subject to a penalty if I'm under 59.5?

I hope the question makes sense. Basically, if I'm dumping money into an IRA now (I'm 23) will I be able to live off those dividends in 10 years? Without penalty?
Title: Re: Do IRA dividend payouts count as withdrawal?
Post by: MDM on July 24, 2017, 12:55:00 AM
My question is: If I have an IRA at early retirement (either Roth or Traditional) and my holdings earn dividends. If I were to choose to keep those dividends rather than re-invest in the IRA (is that even possible?), does that count as a withdrawal?
If you take money out and don't roll that money over to another IRA (or similar), it's a withdrawal.  Doesn't matter whether it is dividends, capital gains, or some part of your original contribution.

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And is it subject to a penalty if I'm under 59.5?
Yes, unless the withdrawn amount was part of a Roth contribution or conversion*. 

*See Two 5-Year Rules For Roth IRA Contributions & Conversions (https://www.kitces.com/blog/understanding-the-two-5-year-rules-for-roth-ira-contributions-and-conversions/) and the sticky thread linked below for qualifiers.

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I hope the question makes sense. Basically, if I'm dumping money into an IRA now (I'm 23) will I be able to live off those dividends in 10 years? Without penalty?
See How to withdraw funds from your IRA and 401k without penalty before age 59.5 (https://forum.mrmoneymustache.com/investor-alley/how-to-withdraw-funds-from-your-ira-and-401k-without-penalty-before-age-59-5/).