If you reinvest all your dividends can you be taxed on them?
Answers | 3
It depends on the type of account in which the dividends are received. If you receive dividends, whether you choose to reinvest them or not, in a non-retirement account then you must include the dividends as part of your taxable income in the year in which they are received. Dividends may be taxed at a different rate than your salary. If you receive the dividends in a traditional retirement account (IRA, 401k, SEP, 403b, etc.) then you don't pay tax on the dividends until you eventually withdraw the money from your account. If you receive the dividends in a Roth retirement account (Roth IRA or Roth 401k) then you are never taxed on them. (Note: This is based on current tax law, which may change. Always work with an advisor who coordinates his/her efforts with your tax preparer so that your assets can be managed in the most tax-efficient way. I am a registered financial planner, not a paid tax preparer.)
Dividends are taxable whether you take them in cash or reinvest them.