I've been considering selling off more of my (growth) stocks and placing the capital in dividend stocks. However, I realize Uncle Sam will tax me on any dividends I earn throughout the year. Is holding these stocks in a tax free account, such as an an IRA, the only way to avoid taxes? Will having the dividends automatically re-invested (like DRIP from TD Ameritrade) still trigger taxes? I dont want to hold the stocks longterm (~ 2- 3 years), as I already have a mutual fund.
Having dividends automatically reinvested (i.e. DRIPs) will cause a tax liability for the value of the dividends.
Qualified dividends (i.e. specific holding period requirements) are currently taxed at a rate lower than ordinary income tax.
Yes, for normal people the way to avoid/defer paying taxes is by using a retirement account (e.g. Roth IRA/IRA/401k). There are of course plenty of legal constructs to manipulate the tax implications of any transaction.