IRA and 401k Dividends

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Jun 11, 2007 3:54 pm

I have been told that dividends from a 401k or IRA can be automatically deposited into a taxable account. The reasoning given was that one would not wish to pay ordinary income upon withdrawal for something that has favorable tax treatment outside a retirement plan. While I understand the reason why one would wish to do this, I have never heard of it being allowed as anything other than a regular distribution. Can anyone shed some light on this? For example, a 35 yr old with 100k in an IRA who just wants his 2k in Diviends annually deposited automatically into a checking or savings account without having it count as a "distribution" since never placed in the IRA to begin with? Sounds suspect to me but difficult to prove a negative...

Jun 11, 2007 4:09 pm

The reasoning makes no sense. 


Those guys (the IRS) don't let the favorable treatment of long term capital gains supercede the ordinary income taxation if you were to sell and w/d stock.


I don't no the answer to your question, but the reasoning is flawed. 

Jun 11, 2007 4:37 pm

I'm willing to say theyain'tnoway!


I'm willing to dismiss that one out of hand. If I'm wrong then I'll have learned something completely new (and completely useless).


NOTHING comes out of an IRA for more than 60 days without there is a tax liability on it. Maybe you can offset the liability with other losses, (I don't know how my accountant did it that one time, but I do know he did it) but that doesn't negate the fact that the distribution came with a liability.


I wouldn't even give this a GTA (good till audited) rating. I'd make the person who told it to you prove it.


Wait a second... "...Dividends FROM a 401K or IRA..."{emph mine} the account doesn't pay dividends, the investment within the 401K or IRA does. When you say FROM... are you talking about a retirement plan funded with a whole life policy?


That could be very different... Insurance might have a different rule. It still might only get up to GTA, but I still definately doubt it.

Jun 11, 2007 4:56 pm
xbanker:

I have been told that dividends from a 401k or IRA can be automatically deposited into a taxable account. The reasoning given was that one would not wish to pay ordinary income upon withdrawal for something that has favorable tax treatment outside a retirement plan. While I understand the reason why one would wish to do this, I have never heard of it being allowed as anything other than a regular distribution. Can anyone shed some light on this? For example, a 35 yr old with 100k in an IRA who just wants his 2k in Diviends annually deposited automatically into a checking or savings account without having it count as a "distribution" since never placed in the IRA to begin with? Sounds suspect to me but difficult to prove a negative...



Who told you this?   You cannot take money out of a tax sheltered plan (IRA or 401K0 without early withdrawal penalties and income taxes.  Unless like Whomit says you plan to reinvest back into another or the same tax sheltered plan within 60 days.


The only othe way is to do a 72T distribution but, that isn't a good plan for a 35 year old and is very restrictive.


I think you have been fed a line by someone who doesn't know what he is doing.

Jun 11, 2007 5:19 pm

This is complete baloney.  I'd stake my CPA (and for that matter, my CFP) on it.

Jun 11, 2007 7:01 pm

Your all wrong I am not going to give you the answer, because I think it is a damn shame that you call yourselves financial advisors and you are not aware that you can do this. Ever heard of NUA....

Jun 11, 2007 7:03 pm

Of course the dividends are taxable and you can do it only on one typoe of investment, and it's not allowed in an IRA only a 401K..I wouldn't want anyone to accuse me of not knowing what I am talking about...

Jun 11, 2007 7:13 pm

NUA applies if you are rolling appreciated stock from a 401K.  Not for dividends earned on investments in an IRA or 401K.


NUA rolling over into a brokerage account instead of an IRA allows you to convert the appreciation to capital gains instead of ordinary income as it would be in an IRA.    You pay ordinary income tax on the average price of the rolled out shares at the time they are removed from the 401K plan and defer taxation on the appreciation to be treated as cap gains later.  If the client doesn't want to  pay the ordinary taxes now and rolls the whole thing into an IRA, then the NUA is taxed as ordinary income in the future.


There is no avoidance of taxation just a shifting to a more favorable tax treatment. 


Your indicates ownership   You're is a contraction between you and are.

Jun 11, 2007 7:14 pm

Bankrep- God I hope you are joking, because that is not what NUA is....


"I wouldn't want anyone to accuse me of not knowing what I am talking about... "


Sorry... You have no idea what you are talking about...

Jun 11, 2007 7:19 pm
bankrep1:

Of course the dividends are taxable and you can do it only on one typoe of investment, and it's not allowed in an IRA only a 401K..I wouldn't want anyone to accuse me of not knowing what I am talking about...


You're such a retard. I'm not saying that to be a dick. You really are. I'm glad you're at a bank, so you can't hurt any real investors too bad.

Jun 11, 2007 7:19 pm

Oh.... and there would still be a 10% early withdrawal penalty on the stock that wasn't rolled over into an IRA and was instead put into a brokerage account.


I also hope you were kidding.

Jun 11, 2007 7:44 pm

Good explanation of NUA Babs....


My oh my... I am calling my mom right now- she has about $20K sitting at her local credit union and I hope to god that Bankrep isnt sitting in the corner office....

Jun 11, 2007 8:34 pm

Which one is Babs?

Jun 12, 2007 8:50 am
bankrep1:

Of course the dividends are taxable and you can do it only on one typoe of investment, and it's not allowed in an IRA only a 401K..I wouldn't want anyone to accuse me of not knowing what I am talking about...





Company stock you idiots. You can take the dividends on company stock out of a 401K. There I told you, now get a life. My comment about NUA was directed at the idiot who said everything and anything taken from a 401K is ordinary income. Do I have to seperate everything and write an explanation for you stupid people.



If you want more info on the dividends most companies rerfer to it as a Dividend Payout Election, look it up or click here http://www.arlaw.com/news_and_events/publications/pub_egtrra _april.html.

Jun 12, 2007 10:09 am
Bobby Hull:

Which one is Babs?


Me. 


I lost my babbling looney password (that was automatically filled in by windows) when I changed computers and didn't remember what email account I used 3 years ago when I set it up.  You can't get a new password if you don't use the right email account. So,I gave up and made a new screen name.

Jun 12, 2007 10:16 am
bankrep1:
bankrep1:

Of course the dividends are taxable and you can do it only on one typoe of investment, and it's not allowed in an IRA only a 401K..I wouldn't want anyone to accuse me of not knowing what I am talking about...



Company stock you idiots. You can take the dividends on company stock out of a 401K. There I told you, now get a life. My comment about NUA was directed at the idiot who said everything and anything taken from a 401K is ordinary income. Do I have to seperate everything and write an explanation for you stupid people.

If you want more info on the dividends most companies rerfer to it as a Dividend Payout Election, look it up or click here http://www.arlaw.com/news_and_events/publications/pub_egtrra _april.html.


Don't expect too much from folks like Bobby on these crazy things like taxes and such...ordinary income for all in his EIA's!!!

Jun 12, 2007 10:29 am
BankFC:
bankrep1:
bankrep1:

Of course the dividends are taxable and you can do it only on one typoe of investment, and it's not allowed in an IRA only a 401K..I wouldn't want anyone to accuse me of not knowing what I am talking about...



Company stock you idiots. You can take the dividends on company stock out of a 401K. There I told you, now get a life. My comment about NUA was directed at the idiot who said everything and anything taken from a 401K is ordinary income. Do I have to seperate everything and write an explanation for you stupid people.

If you want more info on the dividends most companies rerfer to it as a Dividend Payout Election, look it up or click here http://www.arlaw.com/news_and_events/publications/pub_egtrra _april.html.


Don't expect too much from folks like Bobby on these crazy things like taxes and such...ordinary income for all in his EIA's!!!



Despite the banter that goes on here, you'd do well to listen to Bobby on a number of subjects, not the least of which is taxation.  He is VERY knowledgable in that arena.


For what it's worth.....

Jun 12, 2007 10:31 am

The dividends election is for ESOP Plans only, which may be included as PART of a 401K .  The participant has to be fully vested and over the age of 55. The dividends are taxed as they come out.  So in a very limited sense you may be correct in that there is a way to convert dividends from being reinvested into stock and changing the possible capital gains into ordinary income.......providing the client doesn't then reinvest those dividends back into othe cap gains producing investments.


HOWEVER, that wasn't the question the original poster was asking.


I have been told that dividends from a 401k or IRA can be automatically deposited into a taxable account.


If you want to start making up questions and answering them yourself, have at it.

Jun 12, 2007 10:42 am
Dust Bunny:
Bobby Hull:

Which one is Babs?


Me. 


I lost my babbling looney password (that was automatically filled in by windows) when I changed computers and didn't remember what email account I used 3 years ago when I set it up.  You can't get a new password if you don't use the right email account. So,I gave up and made a new screen name.



I thought Dust Bunny was kinda smart. Now I know why.

Jun 12, 2007 10:46 am
BankFC:
bankrep1:
bankrep1:

Of course the dividends are taxable and you can do it only on one typoe of investment, and it's not allowed in an IRA only a 401K..I wouldn't want anyone to accuse me of not knowing what I am talking about...



Company stock you idiots. You can take the dividends on company stock out of a 401K. There I told you, now get a life. My comment about NUA was directed at the idiot who said everything and anything taken from a 401K is ordinary income. Do I have to seperate everything and write an explanation for you stupid people.

If you want more info on the dividends most companies rerfer to it as a Dividend Payout Election, look it up or click here http://www.arlaw.com/news_and_events/publications/pub_egtrra _april.html.


Don't expect too much from folks like Bobby on these crazy things like taxes and such...ordinary income for all in his EIA's!!!



Ordinary, deferred, compounded income for all at a lower rate than what they're paying whle they're working.