By: Revanche

Income Dividends vs. Long Term Cap Gains

April 6, 2007

I received my first Roth IRA transaction statement today, and I must admit: I’m baffled. It lists income dividends at the end of each month, which I understand: as your fund makes money, you get dividends paid out which are just reinvested in the same stock or bond if you choose not to take the money out. Yes? So, what’s this other thing, the long term capital gains thing?

This statement has a lot more information than my usual Vanguard statements. It lists the Year-to-Date Income Dividends, the ST/LT cap gains, the contributions/distributions, and the total income year-to-date separately and neatly. It’s even got my 30-day yield, share prices, trade dates, and total shares owned. Yet, I understand so little!!

I’m really writing this post to serve as a big fat reminder that I need to look all this up and figure it out. But I’m not going to do it right this second because it’s ten til midnight and I’m old and tired. Better luck tomorrow.

2 Responses to “Income Dividends vs. Long Term Cap Gains”

  1. mOOm says:

    The monthly income/dividends are likely the interest on a money market fund. Most US mutual funds invested in stocks pay distributions only once a year near the end of the year. They must pay out all the money they earn from dividends on stocks but also the net capital gains from selling the stocks they own. If they hold the stock for more than a year that creates a long-term capital gain and if for less than a year a short-term capital gain.

    If the fund is in an IRA of any sort though you don’t need to pay taxes on the distributions so this information is only of interest to learn how the fund is making money for you. If all you care about is whether it makes money or not you can ignore the detail.

    Contributions are money you put in. Distributions would be if you took money out of the IRA. If you buy shares in a mutual fund it gives you the price you bought at etc.

    I’ll be happy to answer anything I didn’t cover here.

    I have a Roth IRA with Ameritrade and I find their statements very confusing!

  2. ~Moom~ I couldn’t figure out why I would have a note about a LT cap gain when all I had done was buy the fund! So that’s just a calculation of something done within the fund.

    The other thing I was confused about was that the account balance didn’t actually reflect the total of all the contributions, dividends and gains listed above. Does the account balance only take certain items into consideration?

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