7 Replies Latest reply on Apr 18, 2015 12:39 PM by BoBraxton

    Dividends and capital gains

    Joy62

      Currently, I have some mutual funds that pay dividends and capital gains. I have been having these reinvested into

      the fund but am wondering if it would be better to have the earnings paid into a cash account like savings or checking.

      I am soon to be 65 and am retired from work.

        • Re: Dividends and capital gains
          MyR Community Manager

          Joy62, Thanks for starting a discussion thread!

          • Re: Dividends and capital gains
            JerryD

            Do you need the money to live on? If not, why not reinvest it at no extra buy cost to you? Just remember that these dividends are taxable in a taxable account. Also, be aware that you can exclude the gains if you paid taxes on them before you sold.  GOOD LUCK!!!!  :-)))

            • Re: Dividends and capital gains
              TripleStep

                 Joy62, when you invested in those mutual funds, you made a decision to allow dividends and capital gains to reinvest. Buying the funds and reinvesting was part of whatever you were planning at that time.

                  Maybe this scenario sounds familiar to you: I am eligible for the company retirement plan now. I don't use all of my income to pay my bills. So I think that I will have the payroll department deduct some and put it in the company's retirement plan. This mutual fund looks good, and this one. I'll buy them and just let the money sit there.

                 I do not know how you decided, but that was just about the only financial plan that I had when I bought a mutual fund. Yep. That is a financial plan, of a sort. Not a very detailed plan, but it works, as far as it goes.

                  If you are considering changing your investments, look at your financial plan. The answer will be there.

                  Maybe it is time to improve your financial plan: put in some more details, try to plan for buying a car or paying a big hospital bill, guessing how long your retirement will last, maybe try to leave an estate.

                  Fill out your financial plan with what you want your assets to do for you, figure out how to get you assets to do that, and the answer about where to put dividends and capital gains will become part of that plan.

                  Here is a place to start:

              "Adapt Your Investment Strategy for Risks in Retirement" (at this link: TIAA-CREF - Can I afford to retire? What if I don't have enough?)

              • Re: Dividends and capital gains
                BoBraxton

                Good question and very thoughtful. What I like personally about re-investing is (the timing is random and not under my direct control) it helps me sleep well at night in that when prices are down or are falling, the re-investment being made is at a good price. When the price is high (or rising) I am not worrying anyway. End of August we will have been retired four full years and by now (out of choice) we are spending considerably more than our "standard" social security incomes, her pension, his pension and so forth -- so in some cases, I have had the re-investment for a specific Fund go into my one taxable mutual fund -- also to help boost it toward the Minimum, after which the price for buying is slightly better (and the payout slightly better). The tax part is too involved for my aging brain. I provide to the preparation person the thick stack of 1099 forms and trust her to do what has to be done. I am pleased with results.

                • Re: Dividends and capital gains
                  trhao

                  If it hasn't been a concern to date - perhaps no need to change. You have Automatic Dividend Re-Investment turned on it sounds like. You can turn it off if you like - very trivial.  However the advantage of leaving it on is you can forget about it and it works sort of like dollar cost averaging (albeit not so frequently). It is not random - it is on a scheduled basis - typically 2, 3 or 4 times a year. You can call or look in your prospectus to see when a mutual fund is scheduled to dividends.

                   

                  Personally I don't have it turned on (dividends to to my money market acct) in my taxable mutual fund account. I like to control when I purchase shares. I also use tax efficient mutual funds in my taxable account to mitigate this. I track my investments using identified shares for tax purposes - having DRIP turned on makes a mess of tracking specific shares for my purposes.

                   

                  There's advantages/disadvantages either way - good luck.

                  • Re: Dividends and capital gains
                    Joy62

                    Thanks everyone for your advice and information. I think I have a clearer idea on how it all works now.

                    This is a great place to get help.