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>> That doesn't make any sense. One of the really cool things about a 401k is that it's all tax deferred. So I don't know why you'd have to pay taxes on the dividends in there. <<

An ESOP that is part of a 401K plan can choose to distribute the dividends outside the plan and make it taxable income at ordinary rates.

I don't know why some plans do this, but mine does as well. Why they can't or won't keep the dividends tax-deferred in the account is beyond me.

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