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rsl5483
New Member

I take 401k dividends as cash to my checking (retired 2 yrs ago) last year I got a 1099-DIV this year I got a 1099R are dividends ordinary income or LT capital gains?

My understanding was that cash dividends from my 401k were Long Term Capital Gains (qualified stock) because they were never in my 401k but I am confused why I got a 1099R this year. One of the reasons I took the cash payment option was to lower my tax rate on the dividends.  Is my understanding incorrect? 

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dmertz
Level 15

I take 401k dividends as cash to my checking (retired 2 yrs ago) last year I got a 1099-DIV this year I got a 1099R are dividends ordinary income or LT capital gains?

Cash dividends on stock in your 401(k), paid to you, are distributions from the 401(k) reportable on Form 1099-R and are taxed as ordinary income.  The stock is owned by 401(k) account, not by you personally, so the dividend is payable to the 401(k), not to you, and you only receive the money by distribution from the 401(k).  They are not taxable as capital gains.  Why you would have received Form 1099-DIV in the past for such distribution is a mystery, perhaps payer error.

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dmertz
Level 15

I take 401k dividends as cash to my checking (retired 2 yrs ago) last year I got a 1099-DIV this year I got a 1099R are dividends ordinary income or LT capital gains?

Cash dividends on stock in your 401(k), paid to you, are distributions from the 401(k) reportable on Form 1099-R and are taxed as ordinary income.  The stock is owned by 401(k) account, not by you personally, so the dividend is payable to the 401(k), not to you, and you only receive the money by distribution from the 401(k).  They are not taxable as capital gains.  Why you would have received Form 1099-DIV in the past for such distribution is a mystery, perhaps payer error.

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