Ask Terry Questions I investing in one of my Vanguard funds to avoid the dividend date

I investing in one of my Vanguard funds to avoid the dividend date

By Terry Savage on December 22, 2018 | Investments

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.

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