How to Report Dividends Paid to Traditional IRA
You never directly report dividends paid to a Traditional IRA account to the Internal Revenue Service, as long as you reinvest them or keep them in the account and don't receive them as an IRA distribution. Tax-deferred growth of earnings, including dividends, is a major benefit of an IRA. In a taxable account, you report dividend income to the IRS each year and pay taxes on it. With a Traditional IRA, your tax bill does not come due until you start taking money out of your account.
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Instructions
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Report Traditional IRA distributions, including any dividends, to the IRS as you take them. Your IRA custodian --- the bank, brokerage, mutual fund company or other financial institution that administrates your account --- will do the same.
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Use IRS Form 1099-R, which your IRA custodian sends you each year that you take an IRA distribution, to assist you when filing your taxes. Box 2a usually shows the taxable amount of the distribution. Since the IRS taxes all Traditional IRA withdrawals when you take them, it does not matter if the distribution is an original contribution, a dividend or any other type of earning, such as a capital gain. You must pay applicable income tax on all Traditional IRA proceeds.
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File your tax return as normal. Traditional IRA distributions essentially become part of your taxable income. Your taxable income will be affected by various other factors, including deductions you take, tax credits and estimated tax payments.
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Tips & Warnings
If you elect to receive dividends paid to your Traditional IRA as they occur, you will effectively be taking an IRA distribution when you receive the dividend payments. The IRS taxes these amounts at your regular income tax rate. If you are less than 59½, the IRS, in most cases, levies an additional 10 percent tax penalty on IRA withdrawals.
