Call me financially illiterate, but I only noticed now - after having had a Fidelity 401(k) for over 7 years - that there is this part called “dividends and interest.” I have a couple thousand dollars in there. I had never seen or looked for it in my portfolio before.
How is this different than money in the 401(k) itself, which I cannot withdraw until age 59 (unless I want to incur steep penalties?) Am I likewise barred from withdrawing this “dividend+interest” money until age 59?
If, by the time I retire, I have, say, $500,000 in the “normal” 401(k) portfolio and $100,000 in dividends and interest, then is that essentially the same, retirement-wise, as having $600,000 in the 401(l)\k) portfolio outright?
I’ve had several accounts at Fidelity for years, but in none of those accounts (401K, rollover IRA, HSA) is there a place where “dividends and interest” appears separately.
Perhaps you aren’t fully vested in the 401K yet, and that drives the separation?
As far as what happens at withdrawal time, all pre-tax money and it’s earnings are taxed at the same rate.
I’m fully vested. I am pretty sure it is not a Roth.
I found the dividends+interest part by doing a search on “show results from XX-XXX date to XX-XXXX date”(i.e., Jan 2016 to Jan 2018)
It showed a ledger of my usual portfolio and where it stood (several tens of thousands of dollars, a figure I was familiar with and had tracked for a long while) but then also a separate entry for dividends+interest (a couple thousand dollars,) something I’d never seen before.
Someone smarter will come along in a minute, but I think the ‘dividends and interest’ is the portion of your grand total that you did not contribute (that is, how much your account has appreciated). Again, it is included in your account total; it is not a separate amount (above and beyond your account) that you own.
If I go to the Performance tab on my Fidelity account, to a page that is titled “Personal Rate of Return”, it does show a chart with Beginning Balance, Market Change, Dividends & Interest, and so forth.
But ultimately, the money is treated no differently on withdrawal (again, with full vesting; with partial vesting, company rules would apply).
Velocity, when you say you have a couple thousand dollars in there, where exactly is the ‘there’? Is it in a cash (or money market) fund, commonly called a ‘sweep’ fund that is distinctly different than the fund(s) or investments that make up the bulk of your account? That is, is most of your investment in (for instance) Fidelity ABC fund, and the dividends and interest in Fidelity Money Market Fund, or is everything in the ABC fund?
What usually happens is the investments you buy (whether mutual funds, ETFs, stocks, or bonds) will pay interest, dividends, and capital gains throughout the year. Usually, you can opt to have these paid into a sweep account, or you can opt to have them re-invested. For long term investments, having excess cash is probably not what you want since you can’t withdraw the money right now and can be a drag on your return (YMMV).
Whether your account is set up to park dividends and interest in a cash account or reinvest them, your statement is likely to list interest, dividends, and capital gains separately, so you need to see if the money is in a sweep account or not.
And having $500,000 in the “normal” 401(k) portfolio and $100,000 in dividends and interest is the same as $600,000 in the 401k portfolio outright, but you may not want $100K sitting in cash right now. You may or may not want it when when you retire and start withdrawing the money, but that’s something you can set up when you get to that point.
As for taking it out, look at it this way. Did you pay taxes on the dividends and interest in the year they were earned? No, right? That means you can’t take it out before 59 1/2 without penalty - just as everyone has been saying.
Actually I don’t have a Fidelity account. All my 401Ks have been rolled over into IRAs, and the earnings are very clear in my statements. I’m busy moving some of them into Roths.
I suspect that the “dividends and interest” portion of your 401k isn’t earning you anything. You own X number of shares of the fund. These shares gain (and sometimes lose) value. This is the growth you hope will make your future retirement as much fun as mine.
Your “dividends and interest” is your share of the cash that is paid by the various companies that the fund owns an interest in.
This money is probably just setting there earning you nothing except possibly the .5% Fidelity may pay on savings accounts.
Call Fidelity ASAP and talk to them. You can arrange to have this money automatically reinvested as shares as it comes in. This will make a substantial difference by the time retirement rolls around.
Assuming that the entirety of your account is pretax, there is no real reason to distinguish the dividends and interest from the rest of your account. My guess as to why Fidelity has noted them for you is that they have likely built all the tools for their web site to be of use for all kinds of different accounts that are held with them.
The personal rate of return calculator that you see in your 401(k) account is probably the same one that someone with a standard Fidelity brokerage account would see when they’re looking at their account. A brokerage account holder would certainly want dividends and interest noted separately.
If you run an account statement for a customized period of time, what they show you in your 401(k) account probably looks pretty much the same as the one the brokerage account holder sees.
Financial services companies love to tout all the tools that they make available to their investors. From Fidelity’s standpoint, why build the same tools twice?
Let me try to keep it simple(ish). Your 401k is the container - with certain rules governing because it is designated a 401k, as opposed to a regular investment account. In the container are the investment choices you made - one or more mutual funds. Your deposits, and your employer deposits (if you have them) go in on a regular basis and purchase more and more shares of the mutual funds.
The mutual funds grow (or shrink) in value based on:
Your contributions
Your employer contributions
Dividends
Interest
Capital Gains
Growth in value
Shrink in value
At the end of the day you have the balance, it’s all one bucket with one total amount.
Your activity over any period of time will show all of the contributions, as well as deposits of Dividends, Interest, and Capital Gains.
But it’s all just one balance. So, no it really isn’t meaningful to think that you could treat the Dividend and Interest money as somehow separate, with separate rules applied.
It’s there to let you know how well that investment is earning, because people are interesting in that kind of thing. Some people actively fret over it. They move to different funds if they feel they aren’t making enough.
The dividends and interest have been rolled into the fund. They’re only separate for analysis purposes.
Or to give you an emotional reward for investing. Interest and Dividends is getting money for sitting on your butt (and investing capital). I like looking at them not because I fret about performance, but because reviewing passive income is a little like crack cocaine.