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Vanguard Settlement Fund

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Posts: 14
Topic starter
(@larryh)
Active Member
Joined: 2 years ago

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?

7 Replies
Posts: 12
(@gryphon)
Active Member
Joined: 3 years ago

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".

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5 Replies
(@gryphon)
Joined: 3 years ago

Active Member
Posts: 12

Sorry, ignore that last part, I somehow got confused & thought you said Fidelity instead of Vanguard.

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(@dlzallestaxesmsn-com)
Joined: 5 years ago

Estimable Member
Posts: 193

@gryphon Your answer also applies at Vanguard, American Funds, and all other mutual fund companies.

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(@larryh)
Joined: 2 years ago

Active Member
Posts: 14

@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!

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(@gryphon)
Joined: 3 years ago

Active Member
Posts: 12

@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.

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(@dlzallestaxesmsn-com)
Joined: 5 years ago

Estimable Member
Posts: 193

@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).

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Posts: 193
(@dlzallestaxesmsn-com)
Estimable Member
Joined: 5 years ago

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.

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