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Are you taking distributions this year in cash or reinvesting?
At this point I'm taking a look at the distribution amounts in taxable & tax-advantage accounts. I realize age & investment style will play a part in your choices.
I do both depending on which holding is distributing the cash. Most of my distributions originate in my Roth account where currently taxation is of no concern.
For single equities I generally take the cash and reinvest it where I think it might do me the most good. For equity ETF's I tend to let the distributions just be reinvested because they are never that large to worry much about.
For my CEF funds I am split 50-50. Some offer a 5% discount to market price on reinvestments or reinvestment at NAV vs. market price. Those I tend to reinvest. Other CEF's don't offer those perks so their distributions I just let accumulate in my cash account for dry powder or where again I feel they do the most good.
With "near cash" funds (think, e.g. ICSH) in taxable accounts, I take all divs in cash. These funds tend to have monthly distributions.
Any time I wanted to take cash out of a "near cash" account, I would have to sell shares. If those shares were sold at a loss and divs were getting reinvested monthly, then the loss would be treated as a wash sale. That is, to the extent that divs within 30 days were reinvested.
Messy bookkeeping with reinvested divs. Besides, keeping the divs in cash doesn't cost much in the way of lost returns (vs. keeping in a "near cash" account).
Divs from all tax-sheltered funds are reinvested. I prefer to control the timing when I take money from a fund rather than take some money out simply because the fund chose Dec 31 to distribute income, or Dec 22 (or whenever) to distribute cap gains.
In a taxable account I'll reinvest unless I'm looking to make small allocation changes. Then I'll use the divs for buying different funds. This way I avoid realizing an additional cap gain by selling shares of the old fund. (Not an issue in tax-sheltered accounts.)
@Mark makes an excellent point about reinvesting divs anytime there's a DRIP program (stock or CEF) that offers extra shares at a discount. Don't leave money on the table.
I let the mutual funds reinvest the divs and cap gains in Dec, then typically shave off a few or several thousand $ in January. I take care of some self-imposed obligations that way. I've been reinvesting single-stock divs. Thankfully, we still do not need the money to pay current bills.
Ditto what @msf said above about “near cash” funds. One big mistake several years ago was keeping a taxable account in TRBUX (ultra-short) as a cash reserve for one year and reinvesting the dividends. Come tax time I had dozens and dozens of my own buys and sells at fluctuating NAVs as well as the monthly dividends that reinvested at varying prices. A nightmare to sort out.
We take some dividends, and some capital gains, from the taxables while the IRA's reinvest. When we hit RMD's the taxables will go entirely to reinvesting.
Dividends and capital gains are automatically reinvested for most of my mutual funds and ETFs. Distributions for one mutual fund and an individual stock (only individual stock owned) are directed to a MMF since my goal is to decrease their allocations within a taxable account.
@hank Was your TRUBX ,MF, a direct purchase so you had to do the accounting,instead of the purchase through a brokerage? Gobble, gobble, Derf
Good question Derf. I can’t remember as it was right around the time I packed up and bailed out of TRP. ISTM TRBUX inside a taxable account came along for the ride. Possibly the dividend reinvestments came while at both TRP and Fidelity. The amounts were not large. I used some kind of ”averaging” process to arrive at a reasonable final number for tax purposes.
People experienced in managing taxable accounts can probably navigate the dividend issue OK. Unfortunately, nearly every dime was / is in tax sheltered accounts.
If you reinvest with mutual funds, the brokerage OR the fund firm will keep track of cost-basis. You may have to do it yourself if you change the cost-basis method - there are rules for that.
Because reinvesting for mutual funds is simple and done on ex-div date, I generally reinvest for mutual funds.
For stocks, ETFs, CEFs, I take dividends in cash. Most brokerages just combine all reinvestment indications and execute a big market order a few days after the pay-date (that may be 1-2 weeks later than ex-div date). Only a few firms have special programs for some CEFs to reinvest at discount.
Comments
For single equities I generally take the cash and reinvest it where I think it might do me the most good. For equity ETF's I tend to let the distributions just be reinvested because they are never that large to worry much about.
For my CEF funds I am split 50-50. Some offer a 5% discount to market price on reinvestments or reinvestment at NAV vs. market price. Those I tend to reinvest. Other CEF's don't offer those perks so their distributions I just let accumulate in my cash account for dry powder or where again I feel they do the most good.
Any time I wanted to take cash out of a "near cash" account, I would have to sell shares. If those shares were sold at a loss and divs were getting reinvested monthly, then the loss would be treated as a wash sale. That is, to the extent that divs within 30 days were reinvested.
Messy bookkeeping with reinvested divs. Besides, keeping the divs in cash doesn't cost much in the way of lost returns (vs. keeping in a "near cash" account).
Divs from all tax-sheltered funds are reinvested. I prefer to control the timing when I take money from a fund rather than take some money out simply because the fund chose Dec 31 to distribute income, or Dec 22 (or whenever) to distribute cap gains.
In a taxable account I'll reinvest unless I'm looking to make small allocation changes. Then I'll use the divs for buying different funds. This way I avoid realizing an additional cap gain by selling shares of the old fund. (Not an issue in tax-sheltered accounts.)
@Mark makes an excellent point about reinvesting divs anytime there's a DRIP program (stock or CEF) that offers extra shares at a discount. Don't leave money on the table.
We take some dividends, and some capital gains, from the taxables while the IRA's reinvest. When we hit RMD's the taxables will go entirely to reinvesting.
Distributions for one mutual fund and an individual stock (only individual stock owned)
are directed to a MMF since my goal is to decrease their allocations within a taxable account.
Gobble, gobble, Derf
People experienced in managing taxable accounts can probably navigate the dividend issue OK. Unfortunately, nearly every dime was / is in tax sheltered accounts.
Because reinvesting for mutual funds is simple and done on ex-div date, I generally reinvest for mutual funds.
For stocks, ETFs, CEFs, I take dividends in cash. Most brokerages just combine all reinvestment indications and execute a big market order a few days after the pay-date (that may be 1-2 weeks later than ex-div date). Only a few firms have special programs for some CEFs to reinvest at discount.
At or below target
Early Dec - settlement fund
A couple exceptions, some I really like and are performing well I let get quite a bit above target.
Finished looking at all my MFs & most are taken in cash.
Enjoy your Thanksgiving meal. Derf