My taxable account contains Vanguard Total Stock Market Index. Approximately 1.3% of the fund value is reported as qualified dividends annually and is taxable each year. Under Build-Financial Assets-Advanced Portfolio Modeling-Growth Taxation is allows you to specify taxation of growth. But in this case it is a taxable distribution based on total fund value - not just the growth. How do I handle this?
@peter0697 In Pralana tools, "growth" is more than just capital appreciation; it is all forms of income generated by your investments. You start off by specifying your asset classes and the associated RORs, then specify the asset allocations and, for your taxable account, how the growth within several growth categories is to be taxed. So, you will need to determine the portion of the growth of your Vanguard Fund in your taxable account associated with those qualified dividends and specify that on Pralana's Growth Taxation page.
Stuart
Peter, I had your same issue and think I resolved it as below. I am no expert and just learning this program.
Build-->simple portfolio-->Growth taxation. When I put 14% qualified dividends and 86% tax as LTCG it seemed to give me about the right amount of dividend I was actually receiving from vanguard.
ST
You can get your dividends and their split between ordinary and qualified dividends from your 1099 as to what happened the last few years. However, relating that to the total return is not so simple because any given historical year's return is probably not your projected future return. In the case of 2023, if you used your dividends and compared them to your capital appreciation in 2023 when the S&P posted large gains, that would understate dividends historical percentage of total return.
So what I do is compare those dividend amounts to my projection of the total return. Let's say your funds had 2% dividends, with 80% of those being qualified (so 1.6% qualified, 0.4% non-qualified) and your projected total return was 8% (do this calculation in nominal numbers, no inflation adjustment). Then I use the ratio of the flavors of dividend to the projected total return. So my qualified dividends taxed as LTCG in the current year would be 1.6/8 = 20% of the total return and my non-qualified dividends taxed as ordinary income in the current year would be 0.4/8=5% of the total return. Then 75% of the total return would be a capital gain taxed upon withdrawal. (Those numbers are close to what I use).
Note that Pralana's assumption for figuring LTCG taxes is that dividends remain a fixed percentage of the total return. That's not going to be right in any given year, but over time, you would expect that higher profits drive both higher dividends and higher capital appreciation, so it's on the right track and the largest error in the equation will be your estimate of future returns vs. whatever the actual outturn will be.
Thanks Richard.
Actually a little bit of confusion. I follow your calculations, but not how to input into Pralana.
Build-->Financial assets--> advanced or simple portfolio provides has spots to input growth taxed as qualified dividend and growth taxed as realized LTCG. Are these not the same? Is one mislabeled? No place to put non qualified dividend except perhaps "tax as interest fed only" would be closest?
The taxes on "growth taxed as qualified dividends" and "growth taxed as realized LTCGs" is the same, yes. Pralana tracks them separately as retirees generally want to spend dividends, not re-invest them. Growth taxed as realized LTCGs generally do not result in any money put in your hands, just a tax liability that occurs when a mutual fund sells shares. That can be due to active management of the fund, investors leaving the fund, etc. Having learned that lesson the hard way by getting stuck with thousands in taxes due to LTCG distributions, I now only use index ETFs and those won't have any LTCG distributions.
You enter non-qualified dividends as Growth Taxed as interest.
