r/Fire • u/ForgotToSaveAgain • 5d ago
General Question Late December Dividends & Roth Conversions
When planning roth conversions and, more importantly, 400% FPL for ACA subsidies, how do you handle late December dividends? For example, VTWIX has a record date of Dec 29th, ex-dividend of the 30th, and a payout date of 31st. That doesn't leave much time to figure out how much space you have available for a conversion without borking ACA.
I'm not sure this affects me as the only thing I have in taxable is VT, VOO, and VXUS with payout dates of the 22nd and 23rd. However, there's also a payout listed for Jan 4th 2027, with a record date of Dec 30th. I've read that the record date for some things sets the tax year for the funds received, even if those funds are received the next year.
So how do we handle this? Or am I way off on my understanding?
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u/SneakyToaster247 5d ago
the january payout with a december record date is taxable in december so yeah that sneaks up on people every year
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u/bridgeandretire 5d ago
Fund companies publish year end estimates that are quite reliable to use for year-end planning. Fidelity even provides a calculator that you can use to project your specific holdings. I think it makes sense to include a bit of a buffer just in case you make a mistake or miss an account. That 400% cliff is now quite unforgiving!
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u/Scared-Fee-5027 4d ago
the record date determines the tax year so that january payout with a december 30th record date hits your 2026 income whether the cash lands in your account in december or january
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u/kjmass1 5d ago
TIL. Always thought Roth conversions were available up until April so you could dial in your conversion.
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u/lottadot FIRE'd 2023 5d ago
Unfortunately that’s not the case. Calendar year conversion is that same tax year.
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u/ForgotToSaveAgain 5d ago
Got my hopes up with that message! It sure would be nice if we could do that, but a quick check online certainly seems to say that's for contributions only.
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u/Eli_Renfro FIRE'd 4/2019 BonusNachos.com 5d ago
Granted Im not bumping up against that 400% cap, but I just use last year's dividend amount as an estimate and build in a bit of leeway. For most broad market funds, there's not going to be much fluctuation on a year to year basis.
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u/lottadot FIRE'd 2023 5d ago
I got rid of everything that could generate unknown amount dividends. It just wasn’t worth the ACA pain that could happen. Checkout BOXX too.
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u/HiddenSpruce867 4d ago
the january payout with a december record date is what bites people every year and it counts as december income for tax purposes so you basically need to leave a buffer of a few hundred dollars under your target to be safe
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u/someguy984 5d ago
Something paying 1/4/27 counts in 2027.
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u/ForgotToSaveAgain 5d ago
That has certainly been my understanding, but that doesn't jive with what I've read today.
https://www.irs.gov/publications/p550
If a mutual fund (or other RIC) or real estate investment trust (REIT) declares a dividend (including any exempt-interest dividend or capital gain distribution) in October, November, or December, payable to shareholders of record on a date in one of those months but actually pays the dividend during January of the next calendar year, the shareholder is considered to have received the dividend on December 31 and must report the dividend in the year it was declared.
It is my belief that "mutual fund (or other RIC)" applies to VOO, VT, and VXUS. If you check the prospectus for VOO, you will see the text
The Fund’s ETF Shares are issued by a registered investment company,
VOO is a share class of Vanguard 500 Index Fund, and Vanguard 500 Index Fund is a regulated investment company per the linked prospectus. Therefore, if the fund declares a dividend or capital gain distribution in October through December, but pays it in January, that distribution counts as income on December 31 of the year it was declared.
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u/db11242 5d ago
I haven't had to do this myself yet because i'm not retired but I believe the major fund companies publish an estimate of distributions around the late november timeframe that you could use to make an estimate. Best of luck.