How Are Dividend Paying Stocks Taxed in a Non-IRA Account?

Read this to find out if you're eligible for being taxed on your gains while investing in dividend-paying stocks through a Non-IRA account and why.

Andrew Moran
By Andrew Moran
Edited by Taj Schlebusch

Published July 16, 2021.

Tax penalties on dividend payments will vary based on your investment account. Suffice it to say, a shareholder with a Roth or non-Roth individual retirement (IRA) will possess a different tax situation than an investor without an IRA.

Let's explore the primary component in this conversation: tax brackets.

Dividends and Taxes: A Primer

U.S. taxpayers who are situated in the tax bracket below 25 percent will qualify for the zero percent tax rate on dividends.

According to the Internal Revenue Service (IRS), the income cutoff is $34,500 for individual tax filers. For married couples, it is less than $69,000.

Even if you reinvest the dividends, you will still face a tax penalty. The reason? The government still treats reinvested dividends as if you received a cash distribution from the business.

Should You Have an IRA?

In most circumstances, it is beneficial to hold a Roth or a non-Roth IRA so that you can reduce your tax bill, enhance your investment returns, and facilitate a lucrative retirement nest egg.