I investing in one of my Vanguard funds to avoid the dividend date
I’ve accumulated $20,000 of cash that I want to deposit in one of my Vanguard funds, but I understand there’s a problem that can arise if I do that around a dividend date. Can you explain what I need to know to do that so as to avoid losing some of that deposit?
Terry Says
Well, I’m assuming that this account is NOT inside a retirement plan. (If it were an IRA then this discussion would be moot as all withdrwaals are taxed as ordinary income from retirement plans.)
When you sell shares at a profit (or loss) in an account that is not inside a retirement plan, you get a capital gain (or loss). Gains are taxed at lower rates than ordinary income. When a company or a fund pays out a dividend, the share price is reduced by the per/share amount of the dividend. But, as noted, the dividend is taxed as ordinary income. Most mutual funds pay a dividend at year-end. So you might try to avoid the period just before the year-end dividend is declared. That’s a well-publicized date; just check the Vanguard website.