Mutual Fund Distributions: How Dividend Distributions Are Taxed

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Dividend and Distributions


Mutual Fund Distributions: How Dividend Distributions Are Taxed

David Dierking Mar 28, 2017

Qualified Dividends vs. Ordinary Dividends

Dividends paid out by mutual funds fall into two categories: qualified and ordinary.

Qualified dividends are ordinary dividends that qualify for a lower tax rate provided that certain criteria are met. Qualified dividends are dividends that come from stocks held by the fund for at least 60 days of the 121-day period that begins 60 days prior to the ex-dividend date. In addition, the dividend must be issued by an American or qualifying foreign company.

Ordinary dividends are those that do not meet the criteria for qualified dividends and get taxed at a higher rate. Ordinary dividends include not only non-qualified equity dividends but also the income generated from bonds, money market securities and bank products. Income from products such as real estate investment trusts (REITs) and master limited partnerships (MLPs) is considered ordinary income.

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How Qualified and Ordinary Dividends Are Taxed

Ordinary dividends are taxed at the taxpayer’s ordinary income tax rate. These rates range from 10% to 39.6%.

Examples of Funds That Make Dividend Distributions

The Bottom Line

To learn more about mutual fund distributions, check out our What are Mutual Fund Distributions article.

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