It is worth waiting about a week to buy this fund, but not much longer.
The foreign tax credit reduces the cost of buying the dividend in a foreign fund. Suppose that you are in a 24% bracket, the dividend is 1% of the fund value (which is about the actual June dividend) and 2/3 qualified, and 8% is withheld as foreign tax. Thus, if you invest $100K in the fund, you will receive a $1000 taxable dividend. Only $920 will be deposited into your brokerage account; the other $80 will come back as foreign tax credit when you file your taxes. The $1000 is taxed 2/3 at 15% and 1/3 at 24%, so your overall tax is $190, reduced by the $80 foreign tax credit. So the cost of waiting for the dividend is $110, which is 0.11% of the amount invested. That is about two weeks' difference between stock and cash returns.
The foreign tax credit reduces the cost of buying the dividend in a foreign fund. Suppose that you are in a 24% bracket, the dividend is 1% of the fund value (which is about the actual June dividend) and 2/3 qualified, and 8% is withheld as foreign tax. Thus, if you invest $100K in the fund, you will receive a $1000 taxable dividend. Only $920 will be deposited into your brokerage account; the other $80 will come back as foreign tax credit when you file your taxes. The $1000 is taxed 2/3 at 15% and 1/3 at 24%, so your overall tax is $190, reduced by the $80 foreign tax credit. So the cost of waiting for the dividend is $110, which is 0.11% of the amount invested. That is about two weeks' difference between stock and cash returns.
Statistics: Posted by grabiner — Thu Jun 20, 2024 11:10 pm — Replies 2 — Views 455
