I just learned about the different tax treatment of qualified vs unqualified dividends, and I'm trying to understand which are which (before I get the 1099-*).

First, I understand that I need to hold the ETF pr mutual Fund for 60 days in the 121 days around ex-dividend day - let's assume this is fulfilled, they are held for much longer.
Further, from my research, there are some hints that 'most dividends are qualified', but that's it. Even looking up specific ETFs and mutual funds, and reading all the fine print, they never mention anything about their past dividends being qualified or not. So how can I know?
I am not talking about complex international cases or REITs.

For the scope of this question, let's look at VIGAX. Are VIGAX dividends qualified, and how would I know that? (again, outside of waiting for the 1099-*, which is too late)

1 Answer 1


From Fidelity

Types of dividends

There are 2 basic types of dividends issued to investors of ETFs:

Qualified dividends: These are dividends designated by the ETF as qualified, which means they qualify to be taxed at the capital gains rate, which depends on the investor’s modified adjusted gross income (MAGI) and taxable income (the rates are 0%, 15%, 18.8%, and 23.8%). These dividends are paid on stock held by the ETF, which must own them for more than 60 days during the 121-day period that begins 60 days before the ex-dividend date. Moreover, the investor must own the shares in the ETF paying the dividend for more than 60 days during the 121-day period that begins 60 days before the ex-dividend date. This means if you actively trade ETFs, you probably can't meet this holding requirement.

Nonqualified dividends: These dividends are not designated by the ETF as qualified because they might have been payable on stocks held by the ETF for 60 days or less. Consequently, they're taxed at ordinary income rates. Basically, nonqualified dividends are the amount of total dividends minus any portion of the total dividends treated as qualified dividends.

Note: While qualified dividends are taxed at the same rate at capital gains, they cannot be used to offset capital losses.

From Vanguard as of 12/2019:

Qualified dividend income—2019 year-to-date estimates

The tables below show the year-to-date estimates of the percentage of Vanguard funds' net income eligible for reduced tax rates as qualified dividend income (QDI) under the Jobs and Growth Tax Relief Reconciliation Act of 2003.

These estimates are determined only at the fund level—not for each share class. The year-end percentages could be different, so be cautious about taking any actions based on these figures. Note that these estimates show percentages only, and give no indication about the amount of dividends that each fund will distribute. Equity and balanced funds are likely to distribute QDI to shareholders; money market and fixed income funds will not distribute QDI.

  • For buy-and-hold investors, does Vanguard's estimated QDI indicate how much turnover they have in the underlying equities?
    – RonJohn
    Jan 23, 2020 at 21:19
  • 1
    I hold as well as trade some stocks at Vanguard but I can't help you with that one since I'm not a fund kinda guy. Jan 24, 2020 at 1:42
  • Fidelity didn't mention that in addition to the holding periods, dividends from companies in some foreign countries are not qualified -- but VIGAX is US only so that's not an issue here. @RonJohn: investor.vanguard.com/mutual-funds/profile/portfolio/vigax gives last year's turnover as 12.9%. In general index funds have low turnover, that's one of the claimed reasons for lower expense ratios. Plus VIGAX is growth style, which on average pays less dividends overall; their distributions were about 1% last year. Jan 24, 2020 at 11:54

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