If you are a dividend-paying securities investor on Merrill Edge, you are liable to the market risk of the unpredictable fluctuating prices of securities. It is thus critical to know where your dividends go. That way, you will be able to determine what to do with your dividends and what strategic plans to develop to minimize the risks that you can incur with dividend stocks.
The dividends you receive on Merrill Edge are automatically deposited as cash into your brokerage account. You can reinvest the dividends in additional shares of the asset that pays the dividend, withdraw the fund through a Visa debit card for your brokerage account, or deposit the money into any other bank account.
Let’s take a look into dividend reinvestment on Merrill Edge.
Does Merrill Edge Have Dividend Reinvestment?
Merrill Edge offers reinvestment opportunities for dividends you earn from securities, and the brokerage firm does not charge for it.
Securities like stocks and exchange-traded funds (ETFs) occasionally pay cash dividends which you can reinvest through the Merrill Edge Dividend Reinvestment Program (DRIP). Merrill Edge has made managing the DRIP settings for each security in your account user-oriented.
There are some important points you should note before reinvesting your dividends on Merrill Edge with the DRIP. Let’s consider these points.
- Unless you specifically request to reinvest dividends you receive, all dividends generated by your securities will be deposited into your Merrill Edge brokerage account.
- You need to fill separate dividend reinvestment forms for each eligible account.
- You cannot make changes to reinvestment between the record date and the payable date. If you submit a request during this period, you would have to wait until after the payable date before any changes can take effect.
- Changing your reinvestment options will not affect optional or special dividends. To indicate your preference for such cash payments, you have to contact Merrill Edge directly.
- The dividends for newly purchased shares of a security will be reinvested if you have previously elected to reinvest the dividends of that security.
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How To Reinvest Dividends on Merrill Edge
The DRIP on Merrill Edge allows you to reinvest dividends in additional shares of a security. You can adjust the DRIP settings to suit your investment goals, and here are the steps to follow:
- Go to the “Help & Support” menu at the top of the Merrill Edge website.
- Choose the “Dividend Reinvestment Settings” under “Account Preferences.”
- Select your brokerage account from the “Please select an account” menu. Remember that you can only use one DRIP form for each account.
- The default setting on the form for all securities is for cash payment which is stated as “Receive Cash.” You can change the settings to reinvest for all eligible holdings.
- If you want to reinvest dividends for specific securities, you have to fill the next section of the form. This section allows you to manage your reinvestment preferences for individual holdings. List the name and symbol of each security you want a DRIP for, and select your reinvestment preferences.
NOTE: there are two reinvestment options for mutual funds – reinvesting both dividends and capital gains or reinvesting capital gains only. For ETFs and stocks, you can reinvest dividends and capital gains, but not capital gains alone. However, you can choose to receive cash payment for dividends generated from mutual funds, stocks, and ETFs.
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Are Reinvested Dividends on Merrill Edge Taxable?
Dividends generated from stocks or mutual funds on Merrill Edge are taxable for the year in which you receive them, even if you reinvest them.
You would receive Form 1099-DIV, an IRS tax form that will specify how much dividend you have received for the year. You can then add the amount specified on the form to your taxable income. Even if you use an automated dividend reinvestment plan like Merrill Edge’s DRIP, the dividends remain taxable.
An exception is when a company pays you a dividend in stock, but they do not provide the opportunity to choose between receiving cash or reinvesting the dividend on more shares. In most cases, such dividends are not taxed, so you may not have to pay taxes that year on such dividends. However, when you sell the shares, the income generated is taxable.
The maximum tax rate on “qualified dividends” is now 20%. This rate is relatively fair compared to the ordinary income tax rate of 37%.
Qualified dividends meet all conditions required of them, and they are taxed at capital gains rates. The dividends that do not meet the qualifying dividend criteria are taxed at regular income rates in most cases. Still, there are certain retirement accounts and investment strategies that do not require taxation on dividends. You can obtain more information about such strategies from a tax professional.
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How Can I Withdraw Dividends from My Merrill Edge Account?
Dividends can either be paid in cash to your Merrill Edge account or can be reinvested. If you wish to withdraw the funds from your brokerage account, you should choose the “Receive Cash” option on the reinvestment form for the security that generated the dividend.
There are several ways to withdraw dividends from your Merrill Edge account. One option is to get a Visa debit card for your brokerage account, which you can use to withdraw funds from a point-of-sale terminal or an ATM. Good news – debit cards are provided free of charge by Merrill Edge. Another option is checkwriting.
Merrill Edge has also provided an option that makes things really easy for their customers. They can now automatically deposit your dividends into any external bank account you want. That is, it doesn’t have to be a Bank of America account!
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The dividends you receive on Merrill Edge are deposited directly into your brokerage account as cash. However, you can decide to reinvest them on Merrill Edge through the Dividend Reinvestment Program or deposit them into an external bank account.
Acquiring stocks that pay high dividends or have rapidly growing dividends and reinvesting the dividends is a good way to expand your investment portfolio over time.
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