If all of this is making your head spin, we can summarize like this: Perhaps you can arrange your dividend stock portfolio such that your lower-taxed qualified dividends are paid into your taxable brokerage account and your higher-taxed ordinary dividends are paid into your IRA. Your broker will specify whether the dividends you received are qualified or not in the 1099-Div they send you at tax season.īut knowing whether you're being paid qualified dividends can help you plan properly. The good news: It's actually not your problem to figure this out if you really don't want to. So do dividends paid out via an employee stock-option plan. Money market funds and other "bond like" instruments generally pay ordinary dividends. REIT dividends and MLP distributions have more complicated tax rules however, in some cases, they might actually have lower effective tax rates. Ordinary DividendsĬertain types of stocks don't make the cut.Īll 30 Dow Stocks Ranked: The Pros Weigh Inįor example, real estate investment trusts (REITs) and master limited partnerships (MLPs) typically do not pay qualified dividends. If you haven't, you're probably not, or at least not yet. If that makes your head spin, just think of it like this: If you've held the stock for a few months, you're likely getting the qualified rate. So, to qualify, you must hold the shares for more than 60 days during the 121-day period that starts 60 days before the ex-dividend date. The tax cut was designed to reward patient, long-term shareholders. That part is simple enough to understand. company or a foreign company that trades in the U.S. To be qualified, a dividend must be paid by a U.S. Even tech darlings like Apple ( AAPL (opens in new tab)) and Nvidia ( NVDA (opens in new tab)) regularly pay dividends. It's debatable as to whether the lower rate had the desired effect in the 17 years that have passed, companies (particularly in the tech sector) continue to hoard a lot of cash, and buybacks were credited with being one of the biggest drivers of the 2009-20 bull market.īut it's certainly true that dividends became more of a focus for both investors and the companies paying them following the 2003 tax reforms. 20 Dividend Stocks to Fund 20 Years of Retirement
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