What Are Dividends?
Dividends are payments to shareholders of stocks, bonds, or mutual funds. These payments represent a company’s profit that’s divided among the shareholders. Mutual fund investors can choose whether they want dividends to be reinvested to buy more shares or to be received as cash payments deposited into another account.
Mutual Fund Dividend Taxation
Mutual fund shareholders can be taxed on a fund’s dividends, even if these distributions are received in cash or reinvested in additional shares. Dividends aren’t taxable to the investor while they’re held in certain tax-deferred and tax-advantaged accounts, such as an IRA, 401(k), or an annuity. An investor instead pays income taxes on withdrawals during the taxable year the distribution is made. Mutual fund dividends in taxable accounts, such as individual and joint brokerage accounts, are generally taxed either as qualified dividends or as ordinary income at the individual’s income tax rate or as qualified dividends. Qualified dividends are taxable up to a 20% maximum rate. Ordinary and qualified dividends are reported to mutual fund investors on the tax Form 1099-DIV. The mutual fund investor reports dividends on Form 1040, Schedule B, and Form 1040, lines 9a and 9b for tax filing purposes. Disclaimer: The information on this site is provided for discussion purposes only, and should not be misconstrued as tax advice or investment advice. Under no circumstances does this information represent a recommendation to buy or sell securities.
