401k company stock dividends
Have someone I’m working at that in his 401k plan he buys company stock. He then takes the dividend in cash. He’s been doing a strategy where he only holds the stock a short period of time to get the dividend. He has told me that the dividend is treated as qualified and at the lower rate. From what I’ve been able to find it looks like it should be treated as ordinary income in all cases, even if he held the stock for a long period of time. I can’t find anything definitive on this though and wanted to see if anyone knows how the dividend should be treated for tax purposes. Thanks!
Permalink Submitted by Alan - IRA critic on Wed, 2018-01-03 20:18
Any dividend paid from a qualified plan is not a qualified dividend. He might be receiving a 1099R to report the dividend distribution and there is no place on that form for qualified dividends. Or he might get a 1099 DIV, which has a box for qualified dividends, but the payment should not be included in that box. He should check the form he receives that reports these payments. As such, as you indicated it does not matter how long he holds the shares before selling them. If he reports these as qualified on his tax return, he invites an IRS inquiry.