How to handle dividends with brokerage account

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solarcub
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How to handle dividends with brokerage account

Post by solarcub »

Vanguard finally asked me (for the first time!) to switch over to the brokerage account. I started to do it, and noticed that they asked me right away whether I wanted to re-invest dividends or put them in the sweep fund. The answer is both, which wasn't an option. This raises two questions for me:

1) Can I have them re-invest for my IRAs and have just the taxable account use the sweep fund?

2) For those of you who have dividends go into the sweep fund, how often do you monitor it? To me, the whole point of automatic re-investing is you never have to think about it. I own Wellington, Total Stock, Total Bond, 500 Index, Money Market, ... and the last thing I want is to have to keep track of when each one of these distributes gains or dividends and then log on and send the money somewhere useful. Is this an issue?
Big Dog
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Re: How to handle dividends with brokerage account

Post by Big Dog »

1. Yes, that is what I have been doing for years.

2. Generally, I check the Taxable account once per month. I only have a few dividend-paying stocks so I don't pay that much attention to the Taxable sweep fund. But if a dividend has popped up, I move it somewhere, including my bank checking account to spend.
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FiveK
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Re: How to handle dividends with brokerage account

Post by FiveK »

1. You can choose on an individual fund basis, not just by type of account.

2. All set to reinvest.
delamer
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Re: How to handle dividends with brokerage account

Post by delamer »

If you are trying to keep a specific asset allocation in taxable, then allowing the dividends to go to the sweep account makes it easier to rebalance. You can use the money in the sweep account to do (at least part of) your rebalancing. This is particularly true if you aren’t adding to the taxable account.

Remember that you pay the same in taxes on the dividends whether you reinvest them in the same fund or have them go to the sweep account.
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livesoft
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Re: How to handle dividends with brokerage account

Post by livesoft »

With the Vanguard brokerage platform and also with the old platform one can set what each investment/fund/ETF does with its dividends and capital gains distributions and in each account. They use the term "holding level" to denote the account and investment:

Image

Unfortunately, when making the "upgrade" they do not make this immediately apparent.

As for monitoring, there is no change there either: Do what you did before.
Last edited by livesoft on Sun Jun 26, 2022 6:15 am, edited 1 time in total.
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jebmke
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Re: How to handle dividends with brokerage account

Post by jebmke »

solarcub wrote: Sat Jun 25, 2022 10:29 pm Vanguard finally asked me (for the first time!) to switch over to the brokerage account. I started to do it, and noticed that they asked me right away whether I wanted to re-invest dividends or put them in the sweep fund. The answer is both, which wasn't an option. This raises two questions for me:

1) Can I have them re-invest for my IRAs and have just the taxable account use the sweep fund?

2) For those of you who have dividends go into the sweep fund, how often do you monitor it? To me, the whole point of automatic re-investing is you never have to think about it. I own Wellington, Total Stock, Total Bond, 500 Index, Money Market, ... and the last thing I want is to have to keep track of when each one of these distributes gains or dividends and then log on and send the money somewhere useful. Is this an issue?
1) I do exactly that.
2) monthly, when I know my cash needs for the upcoming month.
Don't trust me, look it up. https://www.irs.gov/forms-instructions-and-publications
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happysteward
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Re: How to handle dividends with brokerage account

Post by happysteward »

I did something new for me anyway this year, with the high losses we are seeing and my desire to aggressively TLH…I am sending all divs and cap gains to my settlement fund in both taxable and tax advantaged (IRAs) , this makes it easier to avoid small wash sales and allows me to do controlled buying…bit of a pain but for this year at least I am finding it helpful….
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UpperNwGuy
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Re: How to handle dividends with brokerage account

Post by UpperNwGuy »

happysteward wrote: Sun Jun 26, 2022 6:43 am I did something new for me anyway this year, with the high losses we are seeing and my desire to aggressively TLH…I am sending all divs and cap gains to my settlement fund in both taxable and tax advantaged (IRAs) , this makes it easier to avoid small wash sales and allows me to do controlled buying…bit of a pain but for this year at least I am finding it helpful….
I made this change, too.
scrabbler1
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Re: How to handle dividends with brokerage account

Post by scrabbler1 »

I can't speak for Vanguard, but I can say that Fidelity allows the client to make a separate decision for dividends and cap gains for each holding in each type of account (well, mostly; read on).

My friend is a Fido client and I help him manage his large portfolio. The individual stocks, bonds, and closed-end mutual funds do not allow reinvestment of anything, of course, so their dividends and cap gains go into the cash/sweep account. The open-ended MFs have the options. Sometimes, he had me reinvest, sometimes, take as cash, with separate choices for dividends and cap gains.

Unfortunately, Fido had this quirk (flaw?) with inherited IRAs. There, the client could not change the reinvest option through the website. However, if we went through a phone rep or online chat rep, that change could be made. When I asked about it, I got some weird answer about how Fido didn't want clients to be able to make those changes on their own. If that makes no sense to you, it made no sense to me. Does Vanguard allow its clients with inherited IRAs to make reinvestment selections normally like with other types of accounts?

The cash which builds up in his inherited IRA is used to make its annual RMD. The cash which builds up in his taxable brokerage account is used to make his annual Roth IRA purchase. This makes it easier for me to help manage his portfolio.
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Re: How to handle dividends with brokerage account

Post by byline0802 »

[quote=livesoft post_id=6747145 time=1656241975 user_id=648]
With the Vanguard brokerage platform and also with the old platform one can set what each investment/fund/ETF does with its dividends and capital gains distributions and in each account. They use the term "holding level" to denote the account and investment:

[img]https://i.imgur.com/sUmnETe.png[/img]

Unfortunately, when making the "upgrade" they do not make this immediately apparent.

As for monitoring, there is no change there either: Do what you did before.
[/quote]

Hi - With this, I was frustrated when Vanguard paid out the Q2 dividends last week and I had set the trading profile of my taxable account to transfer to the settlement fund, but yet Vanguard reinvested my dividends. After clicking around a bit more, I found out that as you note, for each ETF/fund you can select what to do with the dividends. But then, what is the purpose of having the ability to select dividend actions in the account trading profile if the governing setting appears to be with each investment itself? In my case, I change my trading profile dividend setting to settlement fund at least back in March of this year.
jebmke
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Re: How to handle dividends with brokerage account

Post by jebmke »

byline0802 wrote: Sun Jun 26, 2022 9:13 am Unfortunately, when making the "upgrade" they do not make this immediately apparent.
Important to check all settings after making the upgrade. Reinvestment, cost-basis method, beneficiaries. Don't assume anything carries over. It will probably happen correctly for most things but, like carryovers in a tax software program, everything should be verified.
Don't trust me, look it up. https://www.irs.gov/forms-instructions-and-publications
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Blues
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Re: How to handle dividends with brokerage account

Post by Blues »

jebmke wrote: Sun Jun 26, 2022 9:21 am Important to check all settings after making the upgrade. Reinvestment, cost-basis method, beneficiaries. Don't assume anything carries over. It will probably happen correctly for most things but, like carryovers in a tax software program, everything should be verified.
Good advice. Exactly what I did upon finally switching to the brokerage account at Vanguard in May.

(And don't forget to check share balances and basis as well.)
Topic Author
solarcub
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Re: How to handle dividends with brokerage account

Post by solarcub »

livesoft wrote: Sun Jun 26, 2022 6:12 am With the Vanguard brokerage platform and also with the old platform one can set what each investment/fund/ETF does with its dividends and capital gains distributions and in each account. They use the term "holding level" to denote the account and investment:

Image

Unfortunately, when making the "upgrade" they do not make this immediately apparent.

As for monitoring, there is no change there either: Do what you did before.
Yeah, it would have been nice if they made that apparent, but thanks for confirming it.

As for what I did before, I was sending all my dividends and gains from other funds in taxable into VTSAX, and they won't let me do that anymore. So now I have to actually pay attention, or risk letting money sit in the settlement account. So, the brokerage account is a net downgrade for me. Oh, well.
jebmke
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Re: How to handle dividends with brokerage account

Post by jebmke »

solarcub wrote: Sun Jun 26, 2022 10:48 am s for what I did before, I was sending all my dividends and gains from other funds in taxable into VTSAX, and they won't let me do that anymore. So now I have to actually pay attention, or risk letting money sit in the settlement account. So, the brokerage account is a net downgrade for me. Oh, well.
You should look at your accounts monthly to make sure there aren't any fraudulent transactions. Just do it then. Most equity funds pay dividends quarterly so it isn't like there are many months when the amount can be very large -- unless you have a very large bond position in this account -- bond funds pay dividends monthly.

One thing you haven't seen yet is that the tax reporting is much simpler with a brokerage account.
Don't trust me, look it up. https://www.irs.gov/forms-instructions-and-publications
livesoft
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Re: How to handle dividends with brokerage account

Post by livesoft »

jebmke wrote: Sun Jun 26, 2022 10:52 amOne thing you haven't seen yet is that the tax reporting is much simpler with a brokerage account.
I didn't notice any particular change in tax reporting. Simple before; simple after.
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jebmke
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Re: How to handle dividends with brokerage account

Post by jebmke »

livesoft wrote: Sun Jun 26, 2022 11:04 am
jebmke wrote: Sun Jun 26, 2022 10:52 amOne thing you haven't seen yet is that the tax reporting is much simpler with a brokerage account.
I didn't notice any particular change in tax reporting. Simple before; simple after.
My MF account lists each MF on the 1099-Div so each one has to be entered in separately. In my brokerage account, it is all lumped into one entry.

If I sucked the data in, I suppose it would technically be the same but I doubt it would reduce the time it takes me to do my return materially. I can bang out our return in 45 minutes or less entering everything by hand. The entries all need to be reviewed whether by hand or electronic so there is no saving of time on quality review (to the chagrin of my spouse who has the task of reviewing all the entries.)
Don't trust me, look it up. https://www.irs.gov/forms-instructions-and-publications
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Mullins
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Re: How to handle dividends with brokerage account

Post by Mullins »

One more use... of distributing dividends to the settlement fund... is to top off a Roth Conversion. If you're at a certain amount where $X +1 puts you in the next tax bracket, the convenience of converting an exact amount up to $X works the trick, buying funds with it in the Roth the next day.
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Topic Author
solarcub
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Re: How to handle dividends with brokerage account

Post by solarcub »

solarcub wrote: Sat Jun 25, 2022 10:29 pm Vanguard finally asked me (for the first time!) to switch over to the brokerage account. I started to do it, and noticed that they asked me right away whether I wanted to re-invest dividends or put them in the sweep fund. The answer is both, which wasn't an option. This raises two questions for me:

1) Can I have them re-invest for my IRAs and have just the taxable account use the sweep fund?

2) For those of you who have dividends go into the sweep fund, how often do you monitor it? To me, the whole point of automatic re-investing is you never have to think about it. I own Wellington, Total Stock, Total Bond, 500 Index, Money Market, ... and the last thing I want is to have to keep track of when each one of these distributes gains or dividends and then log on and send the money somewhere useful. Is this an issue?
Whoops, I didn't read carefully enough. The site was just asking me about one of my accounts (taxable, joint with my wife), not about my IRA account, my Roth IRA account, or my rollover IRA account. I was in fact able to select re-invest for all the IRAs and settlement fund for the taxable account. (Unfortunately the transition did not go through properly, so I have to call in tomorrow and get some help, but that's a separate issue)

Anyway, thanks for your help everybody.
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Re: How to handle dividends with brokerage account

Post by grabiner »

Mullins wrote: Sun Jun 26, 2022 1:13 pm One more use... of distributing dividends to the settlement fund... is to top off a Roth Conversion. If you're at a certain amount where $X +1 puts you in the next tax bracket, the convenience of converting an exact amount up to $X works the trick, buying funds with it in the Roth the next day.
It isn't usually important to be this precise. If you convert $100 too much and go into the 22% tax bracket, you pay $22 extra tax rather than the $12 you were expecting, so you lose only $10. Similarly, most income-based limits in the tax code phase out; you lose only a small part of a tax or education credit if you go over the limit.

However, there are a few hard thresholds for which it can be important. If you go $1 over an IRMAA limit, your Medicare premiums for the next year will be increased, which could cost you hundreds of dollars.
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Re: How to handle dividends with brokerage account

Post by tibbitts »

Is there a reason why "invest into another Vanguard fund" isn't an option for dividends or capital gains on the Vanguard brokerage platform as it is for the mutual fund platform? Is it an option on other brokerage platforms?
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Mullins
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Re: How to handle dividends with brokerage account

Post by Mullins »

grabiner wrote: Sun Jun 26, 2022 1:43 pm
Mullins wrote: Sun Jun 26, 2022 1:13 pm One more use... of distributing dividends to the settlement fund... is to top off a Roth Conversion. If you're at a certain amount where $X +1 puts you in the next tax bracket, the convenience of converting an exact amount up to $X works the trick, buying funds with it in the Roth the next day.
It isn't usually important to be this precise. If you convert $100 too much and go into the 22% tax bracket, you pay $22 extra tax rather than the $12 you were expecting, so you lose only $10. Similarly, most income-based limits in the tax code phase out; you lose only a small part of a tax or education credit if you go over the limit.

However, there are a few hard thresholds for which it can be important. If you go $1 over an IRMAA limit, your Medicare premiums for the next year will be increased, which could cost you hundreds of dollars.
Could the increased income also make more of one's social security payment subject to tax?
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grabiner
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Re: How to handle dividends with brokerage account

Post by grabiner »

Mullins wrote: Sun Jun 26, 2022 3:18 pm
grabiner wrote: Sun Jun 26, 2022 1:43 pm
Mullins wrote: Sun Jun 26, 2022 1:13 pm One more use... of distributing dividends to the settlement fund... is to top off a Roth Conversion. If you're at a certain amount where $X +1 puts you in the next tax bracket, the convenience of converting an exact amount up to $X works the trick, buying funds with it in the Roth the next day.
It isn't usually important to be this precise. If you convert $100 too much and go into the 22% tax bracket, you pay $22 extra tax rather than the $12 you were expecting, so you lose only $10. Similarly, most income-based limits in the tax code phase out; you lose only a small part of a tax or education credit if you go over the limit.

However, there are a few hard thresholds for which it can be important. If you go $1 over an IRMAA limit, your Medicare premiums for the next year will be increased, which could cost you hundreds of dollars.
Could the increased income also make more of one's social security payment subject to tax?
Yes, but again this is not a hard threshold (although many sources, including the IRS publication, suggest that it is). If you are $100 over the lower threshold for SS taxation, then only $50 of your SS is taxable, not 50% of your SS. This would increase your marginal tax rate from 10% to 15%, or from 12% to 18%. Similarly, if you are $100 over the higher threshold, that extra $100 makes only $85 more of SS taxable, not 85% of your total SS. This would increase your marginal tax rate from 12% to 22.2%, or rarely from 22% to 40.7% (and the 40.7% range is very small if it applies).
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