Investment Income Distributions
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Investment Income Distributions
You have a number of options for receiving any income you earn from an investment.
Things To Know
- You can receive your earnings, or you can reinvest your dividends.
- With stocks and mutual funds, you can liquidate some shares or set up a withdrawal plan based on periodic liquidation of shares.
You can reinvest dividends
The issuer of a security—be it a corporation, a government unit, a mutual fund, or a bank—pays dividends or interest directly to you after it earns it. If you choose to have your dividends reinvested, however, you will not receive them. Dividend reinvestment is a strategy favored by growth investors.
You can liquidate shares
With stocks and mutual funds, you can opt to liquidate shares to obtain income. The stock or fund will redeem shares and send the proceeds to you. A disadvantage of this is that you will have fewer shares on which to earn future dividends. An advantage to this approach is that income received may be taxed under the lower capital gains rates rather than as regular income.
You can set up a withdrawal plan
Under some investment plans, you can even arrange to have stock or mutual fund shares liquidated periodically. You can have them liquidated up to a point, or until they are completely gone. This option, called a withdrawal plan, is popular in retirement plans.
