Electron wrote: ↑Sat Jun 19, 2021 9:44 pm
Can anyone tell me if Vanguard Mutual Fund Dividends are paid out differently when in a Vanguard Brokerage Account?
Previously, Vanguard fund dividends would credit to my Vanguard Brokerage Settlement fund on the ex-dividend date. One of my funds went ex-dividend on Friday and nothing is showing in the account. However, I have the same fund in a Vanguard brokerage retirement account and dividends set up to reinvest are showing in that account.
If you auto-reinvest dividends, the brokerage and non-brokerage handling of VG mutual funds is the same.
If you direct dividends to the settlement account @ brokerage, yes, they do need to settle. Your non-brokerage account(s) have no settling or settlement fund, but have the feature that you can direct dividends from any fund to any other. (And there's nothing special about MMFs in this context.)
FWIW, I direct all dividends from my taxable accounts to my external bank account. My experience has been that the timing of those transactions are the same for brokerage and non-brokerage: if the declaration date is Day 0, and the re-invest date is Day 1, then the funds are credited to my bank account in the early hours of Day 3. In the case of (muni) bond funds, the declaration and re-invest dates are both on Day 0, and those show up in my bank account on Day 2. (YMMV if you use a different bank.)
One disappointment was how Vanguard handled the mid-month dividends accrued in several Municipal Bond funds. Those dividends were set up to go to my brokerage settlement fund yet Vanguard wound up reinvesting relatively small amounts into each fund paying a dividend. The dividends are correctly shown as paying out to the settlement fund in the new account profile.
When you transfer or sell 100% of the holdings in a mutual fund, the accrued dividends (if any) have to go somewhere. Leaving them behind in an account that no longer exists is not an option. From the perspective of the new brokerage account these incoming dividends are not dividends earned within the account.
FWIW, when I converted, it would have been theoretically possible to distribute my accrued muni dividends to my bank account, since that is how my non-brokerage account was configured. But they were shipped to the new fund holding in the brokerage acct, same as yours.
One thing to watch for is that the tracking of distributed dividends from your muni funds will be slightly different. In a non-brokerage account, your statements will show running totals of dividends distributed from January onwards. And the December statement will agree with what is shown on the 1099. However, in a brokerage account a distributed (not auto re-invested) bond fund dividend is not credited until the next month, so the running totals on statements are totals from December of the previous year. However, tax law cares only about when the dividends are earned, not when they are distributed, so your 1099 will show a different number, for Jan to Dec.