401K dividend question

[stevepaa]

Every year I declare the roll over dividend from my 401K on sched B. I am now wondering if that was wrong. I presume that since I declared the dividends, come the time for distribution I can deduct said declared dividends from the distribution as being non taxable at that time.

What say the brain trust?

[widgeon13]

I don't believe that is an option, declare and pay tax on dividends on an annual basis. You pay at time of distribution and only then on whatever you take out of the 401k. The idea being that your tax rate will be lower after you retire.

I'm not an accountant so just offering an opinion. I'll be watching to see what others have to say.

[MBAtarga]

that was wrong. no tax on dividends paid within a 401k until it is distributed.

[lukeh]

If you take the dividends on your 401k (or IRA, SEP, Simple...) it is taxed as ordinary income. Dividends and capital gains are not taxed as long as they stay in the retirement plan but all distributions are considered ordinary income.

[stevepaa]

The dividend is rolled over into the fund. I have not taken any money directly.

But I have declared it each year, so I presumed when I do take a distribution, that whatever amount I have declared previously would be exempt from taxes at the time of withdrawal.

[DonDavis]

I have a slightly different question.
When do I HAVE to start drawing from my 401k? Is there a MUST draw age or can it sit as long as I say?

[gtc]

Age 70.5, unless you're still working.

[Hugh R]

I don't know how long you've been doing this, but stop and get an accountant. Perhaps you can do an amended return for previous years. You declared the dividend, but it gets rolled into your 401K and grows anyway. You can't seperate declaring the dividend and the compound growth, hence why you pay tax on withdrawl.

Don't know about age when you must begin drawing from a 401K, but there is one.

[widgeon13]

70 1/2 is when u have start drawing down

[lukeh]

Originally Posted by stevepaa

The dividend is rolled over into the fund. I have not taken any money directly.

But I have declared it each year, so I presumed when I do take a distribution, that whatever amount I have declared previously would be exempt from taxes at the time of withdrawal.

I wouldn't presume anything at this point. As was mentioned, you need tax help. This is a big mistake and you should cover your butt and find out what other errors you might be making. I've never heard of anyone paying taxes on their reinvested IRA account and even the CPA I work with has no clue how you will handle this. He said if you don't pay the taxes when you take the money out the IRS will be all over you.

If you aren't taking the money out of the 401k then you shouldn't be paying any taxes on it. That is the advantage of having retirement accounts. In other words, you have been paying taxes on a tax deferred account. Our CPA suggests you need to go back and refile for all those years otherwise you are in for a nightmare once you do start taking it out.

[stevepaa]

thank you, I'll go back and look.