Dividend stocks... Can you roll your dividends back into the stock with out paying taxes?

Question

If a stock produces a dividend can you roll that dividend back into the stock or buy a new stock with out paying capital gains? If you have a dividend stock in a roth ira can you use the dividends to buy more stock or roll it back into the stock while keeping it in the Roth? Can you move investments around in a Roth ira?

Answer 1

Many companies have Dividend Reinvestment Programs (DRiPs).  They will roll the dividends back into new stock automatically.  Because they do not have to sell the new stock through a broker, they even sell it to you at a slight discount.

However, you do have to pay taxes on the dividends paid.

But if you have the stock in a tax exempt account like an IRA or 401K plan, then the dividends are also shielded from taxes -- as long as you keep them in the account.

Answer 2

dividends can roll back into the same stock or into the trading account then used to purchase a different stock, but no, they will not be tax free.  You have to pay capital gains tax on whatever gains you make no matter how they are reinvested.  Even if you have that stock in a Roth IRA account or a regular IRA.  you will pay tax on the new money going into the IRA either when it first rolls over into the Roth or later when you start to draw from your regular IRA.   As far as moving investments around in a Roth IRA, I believe there are rules like only certain stocks can be moved in and out or only certain funds can be moved like that.  Not sure about that.  Check investopedia for clarification.  It is a good site with easy to access information that makes sense to just about anyone.

Answer 3

Dividends are income, not capital gains.

You own taxes on all dividends and capital gains at the end of the year in all taxable accounts.

Roth IRA is not a taxable account.  Yes, dividends can be reinvested within the account...or used to by other assets.  Yes, you can move assets around within the Roth IRA (I assume you mean trading within the account)

Answer 4

If you have a dividend stock in a Roth IRA, you can use the dividends to roll it back into stock while keeping it in the Roth IRA as long as your broker supports DRIPs.  I use Firstrade and this is done automatically and free of charge.

I believe that you are still taxed on the dividends and I also believe that you cannot move investments around in a Roth IRA that easily.  If you withdraw too early, and do not qualify for exceptions, you probably will face penalties.