Discussion Forum
This forum is provided for informational purposes and it not intended to be relied upon as a source of investment, tax or legal advice. The ideas expressed on this site are solely the opinions of the author(s) and do not necessarily represent the opinions of the 72tNET.com owners, or the sponsors or firms affiliated with the author(s). Any action that you take as a result of information, analysis, or advertisement on this site is ultimately your responsibility. Please read our Forum Rules.
BEFORE POSTING: Use this TEMPLATE when submitting a new post. Make sure you understand all terms used in the template and double check your answers before submitting your question. Carefully review the SEPP Planning Pointers and materials under the Tools and Resources menu (IRS Resources, Glossary, and Applicable Federal Rate table) before posting to make sure your question is clear and the answer you receive is accurate.
Subscribe to posts or edit your subscriptions by clicking on this link https://72tnet.com/community/subscriptions/ .
PLEASE NOTE: To avoid confusion, please do not add your question to someone else’s thread. If you have a question, please create your own post.
I started my SEPP on March 3, but I noticed that instead of reinvesting my divident that my settlement fund had about $600. I guess I forgot to do automatic reinvesting of dividends. I only withdrew the actual amount permitted by the SEPP program (5%) and the valuation was based on the initial value of the investment. Can I just move that $600 back into the IRA?
That dividend should still be in your IRA; the fact that it's cash doesn't automatically remove it from the IRA account. And yes, you can re-invest that cash.
You can also change the settings on the account so future dividends will be automatically reinvested, it's not too late to start doing that. Select "Account Features" from the menu, then "Brokerage & Trading" and under that select "Dividends and Capital Gains".
Sorry, ignore that last part, I somehow got confused & thought you said Fidelity instead of Vanguard.
@gryphon Your answer also applies at Vanguard, American Funds, and all other mutual fund companies.
@gryphon I called Vanguard yesterday, and that’s exactly what they said. I was just freaking out because I don’t want to bust this thing right out of the gate! But the friendly Vanguard reassured me like you just did, that it’s perfectly acceptable to reinvest back into the IRA, and we fixed the glitch so that everything gets automatically reinvested. Thanks so much!
@larryh Right, but you're not reinvesting into the IRA, you're reinvesting money that's already inside the IRA. That's an important distinction - you can't deposit outside money into this IRA anymore because that will break your 72t plan. Dividends & capital gains earned by the investments in the IRA stay inside the IRA & that's why that money can be reinvested without breaking the plan.
@gryphon We agree. But, my point was that usually it may not make sense to reinvest the dividends within the IRA because either monthly, quarterly, semi-annually, or annually, you will need the cash anyway to make the distribution, and to remit the withheld (or estimates taxes). If you re-invest the dividends, then you will have to sell some investment in order to provide the CASH needed for these purposes. The only situation that I could consider reinvesting dividends was if the distributions were annual (and possibly semi-annual).
If you reinvest the dividends, then you will have to sell some investments before you make distributions. Cash will be needed not only for the distribution to you, but also for Vanguard (or any account) to send cash to the IRS (and state, except PA) for the taxes that should be withheld, unless you are filing estimated taxes, in which case you will need the total GROSS amount of the distribution in cash either way.
