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Taxation of Dividends

By Terry Savage on August 18, 2017 | Financial Planning / Retirement

"Since there is no special taxation benefit for dividends on stocks these days, it really doesn’t matter how the money in the plan is generated." Terry: I take issue with your answer. In you are in the two lowest tax brackets (10%, 15%), then dividends (and capital gains) are taxed at zero. That is a big incentive to keep income below certain thresholds.

Terry Says

But when you WITHDRAW money from a retirement plan it is ALL taxed as ordinary income -- at your current tax bracket.  That is the answer to the question that was asked -- based on whether the plan assets grew from stock gains or dividends. Yes, it does sometimes move you into a higher tax bracket to take retirement plan withdrawals.  But it the withdrawal is a MANDATED amount, (the RMD), there's not much you can do about that!



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