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Author: Mil2025 Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 74759  
Subject: IRA Cash Dividends to buy new Stocks Date: 2/6/2012 10:53 AM
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I am funding my 2011 IRA account, and have a question that should be easy to answer, I just can’t find it anywhere.
Let’s suppose I buy $1,000 of a stock that pays a 10% dividend, and I take the dividends as cash in the account. The money stays in the IRA account, or in other words, I do not withdraw the money. At the end of a period of time, I have $100 in cash (10% of $1k). Can I purchase more stock within the IRA using that cash?

Alternatively – let’s suppose I buy all high yielding stocks or closed end funds or EFTs or even Royalty Trusts (NLY, NLR(eft), PBT are examples). Each year I accrue a certain amount of cash from my original $5000 contribution of post-tax dollars. For sake of argument, the aggregate is about 10% or $500 annually. Can I use this cash balance to buy more stocks? If I do, what are my tax implications? Assume that I never take any distributions or withdrawals until I am forced to later in life.

I think I can take all this cash and continue to buy more stocks – if not, then I’d need to know rather soon –

Any guidance or documentation would be most appreciated.

Best Regards,
Thomas
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