How to Receive Dividends in an IRA

Take cash dividends from your IRA for retirement income.

Some stocks and mutual fund investments pay dividends. You can choose to have the dividend sent to you in cash, reinvest the dividend in the stock or mutual fund or allow your dividends to accumulate in a cash account. In an IRA, a dividend withdrawal is taxed as ordinary income, not at the lower capital gains rate. You can receive the dividends from your IRA by instructing your IRA provider according to your wishes.

Instructions

1. Request a dividend payment form from your IRA custodian, such as a mutual fund company or a brokerage firm. Your custodian typically offers several payout options for your convenience.

2. Choose the dividend payout option you prefer. You can receive a dividend check by mail or by direct deposit to your bank account. You may also elect to reinvest your dividends.

3. Provide your address if you want to receive a check, or your bank account number and routing number for direct deposit. Specify your preference to receive dividends as they are paid into your IRA. Alternatively, you can allow your dividends to accumulate in your brokerage cash account and request a full withdrawal of all cash in the account on a periodic basis.

Tips & Warnings

• Direct deposit transfers of your dividends to your bank provide a safe and rapid payment. You will have immediate access to your cash dividend.

• If you are younger than 59½, a dividend withdrawal is considered a premature distribution and will be assessed a 10 percent penalty in addition to ordinary income tax. Dividends withdrawn from a Roth IRA enjoy tax-free status if you are older than 59½.

References

• Internal Revenue Service: Publication 590 IRAs
• Money Reasons: Roth IRA -- The Dividend Shield

Resources

• Forbes: Rev Up Your IRA