Dividend Reinvestment in a Roth IRA

[Guest husstang]

I have been looking into investing in a few companies that pay dividends and also offer a dividend reinvestment plan. This investment will be in my Roth IRA account. My question is about whether or not these reinvested dividends will be considered a contribution. For example, if I have $500 of reinvested dividends, how will this affect my contribution limit? Will I still be able to make a full contribution, or will my limit be $500 lower. Thank you for any help.

[John G]

The reinvested dividends are not considered contributions. Contributions are your "deposits" to the account. Everything that happens within the account (stock splits, stock dividends, regular dividends, return of capital, interest, etc.) are part of your performance or annual return.

You will need to talk with your IRA custodian as to what kind of dividend reinvestment options they support. The custodian may have restrictions based upon their concept of admininstrative simplicity or cost. Note, I am not talking about DRIP type programs, just basic dividend reinvestment.

[JAMES PATRICK]

I've had accounts with TD Waterhouse for years and have had dividends reinvested in both my Traditional and Roth accounts, as well as a taxable account.

They have handled it without any major problems. Even some EFT's which pay monthly, $2.00 or $2,000.00, didn't make any difference.