I didn't want this to clutter up/get lost in the stock market thread...

If you are an ordinary working class Joe with W2 income and you start to build a dividend portfolio...

What is the easiest way to manage paying your taxes on your reinvested dividends every year? Obviously you would start off setting aside some of your earned income so you wouldn't have to sell any of your holdings to cover it, but what do you do when it starts to snowball and you make 5 figures, 6 figures a year on it?

Is this only smart/advisable in a non-taxable account and doing it for retirement? Is that generally what is done?

Thanks in advance. I am trying to plan out a long term strategy and this issue just dawned on me.

The scale of this is typically easily managed within normal cash reserves followed by modest adjustments to ongoing savings/investment plans.

K1 type income or large capital gains are the ones that usually need a little more reserved/planned around.

At some point portfolio income relative to wage income can be a challenge, but sounds you aren't t at that point yet.

This is why I dividend into a ROTH. Future problems for future me but taxes ain't one.

I have them set with Fidelity to auto - is the better move then to turn that off and set aside a % for taxes and just buy as many shares as I can of the underlying stocks?

I know when I reinvest I'm getting fractional shares, will that be available to me with this method?

CC09LawAg said:

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I have them set with Fidelity to auto - is the better move then to turn that off and set aside a % for taxes and just buy as many shares as I can of the underlying stocks?

I know when I reinvest I'm getting fractional shares, will that be available to me with this method?

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Or do not invest as much in the market and hold funds back to pay the taxes on the dividends. Of if still working, increase your withholding to cover the taxes on your dividends. Or, if in need of cash to pay taxes, sell enough of the investments that have underperformed to pay the taxes on your dividend income. As another poster said, you sound like you are a ways from this being an issue. I think the main thing is to continually invest. At the current tax brackets, you are likely to be paying 15% on your qualified dividends, so $50,000 in qualified dividends would cost you only $7,500 in tax, not a back breaking amount.

We earn dividends in our retirement accounts and in our taxable accounts and always have and have never spent too much time worrying about the taxes owed on them.

Awesome, thanks everyone.

I didn't want to tell my wife how smart I am with my plan and then have to turn around during tax season and explain how stupid I am.