With potentially another 25-30 years until retirement on a traditional path, creating an accessible income stream sooner than that is interesting.
There are many great potential investment opportunities and I’ll admit I didn’t do much math in the past. And I’ll have to admit that I forget sometimes that taxes also take a bit of that income. As I became more serious recently, I realized that I need to do more math to make sure I’m using my cash efficiently.
About a year ago I started to learn about REITs (Real Estate Investment Trusts) and then later learned the difference between qualified and ordinary dividends.
I’m a regular person, not an investment or tax professional, and the tax computations are complicated especially if there are itemized deductions involved. So let’s keep the math “simple” and look at the tax rates of 25-28% and long term/qualified rate of 15%. That means a stock with a dividend with 4% yield may be taxes at different rates in a taxable account. So I’d rather have a 4% yield “qualified dividend” stock in my taxable account over a 4% yield “REIT/ordinary dividend” stock. That REIT stock may have great long term prospects, but it may be more interesting in a retirement account.
So in my watchlist spreadsheet with an absurd number of columns, I have a current yield column and a column to represent the yield after taxes. I can sort on either column to figure out what may be more attractive from a taxable account or retirement account perspective.
Ultimately if I’m benchmarking at a starting point of at least $100 per stock per year in dividend income (and maybe building to $1,000 per year in the long term), it’s not all created equally based on taxes.