Okay, the original title for this was supposed to be How We Earned Nearly Nine Grand in Passive Income This Month. Like you, I am always trying to increase my and my family's passive income.
That was before I Googled the Question "Are Capital Gains Passive Income?" and found the answer to be, technically, No.
According to none other than the Internal Revenue Service, passive income is strictly defined to include only a few revenue streams, and the election to treat capital gains as passive income does not exist. A capital gain is an increase in value of a capital asset, such as an investment property or stocks, that makes them worth more than they were when you purchased them.
However, until the capital asset is sold, you will realize no gains. Capital gains can be short-term – held for a year or less – or long-term assets held for more than a year. When a capital asset is sold, then the proceeds from the sale are taxable. But, just how much you're taxed depends on several factors, including whether or not it was held as a long or short-term asset.
That was before I Googled the Question "Are Capital Gains Passive Income?" and found the answer to be, technically, No.
According to none other than the Internal Revenue Service, passive income is strictly defined to include only a few revenue streams, and the election to treat capital gains as passive income does not exist. A capital gain is an increase in value of a capital asset, such as an investment property or stocks, that makes them worth more than they were when you purchased them.
However, until the capital asset is sold, you will realize no gains. Capital gains can be short-term – held for a year or less – or long-term assets held for more than a year. When a capital asset is sold, then the proceeds from the sale are taxable. But, just how much you're taxed depends on several factors, including whether or not it was held as a long or short-term asset.
What about all the Dividends that my family collected this month?
According to Joseph Hogue, a Certified Financial Advisor, dividend investing is, indeed, a form of collecting passive income, so we are collecting a few grand in that regard this December.
Between our family's various investments, every one of which I selected and have funded with nobody else ever contributing a dollar, the capital gains and dividends that we have collected amount to our highest amount so far, $8,725.
Three things that I want to mention about this number, especially for those of you who collect less or perhaps even no unearned income from investments.
First of all, this amount is not bragging in the least. It just is what it is and is the result of nearly twenty years of diligently investing in funds that pay out dividends and capital gains.
Second, the nearly nine grand paid out in short-term and long-term capital gains (almost seven thousand) and dividends (about eighteen hundred) and interest (seventy bucks) did not really increase the amount that we have invested. In many cases, the underlying investment's price was reduced by a comparable amount that was paid out in the form of capital gains and dividends.
With the recent decline in the Dow Jones, we probably have less money in our accounts today than we did at the beginning of the month.
Third point is that I would like for it to be much higher. Just like if you just received your first hundred bucks in dividends and want it to become two hundred, I would feel better about collecting several thousand more.
I realize that this is unlikely, considering that over $3,800 of this amount is attributable to one of my daughter's college accounts. Not too shabby considering that there were several years when I contributed less than that amount all year. During the height of the Recession, I did not contribute to it at all. Proof in point of the awesome power of dividend reinvesting.
Check out my post about my fifteen year journey of saving up for my children's college to see what fund paid out such a large amount of capital gains.
Over $2,600 of these capital gains were collected in my wife's Primecap account. Unfortunately for those who wish to open an account in this fund, it has been closed to new investors for quite some time.
Over two grand was added to my own accounts, all of which are with T. Rowe Price and include the Blue Chip Growth fund, the Capital Appreciation fund and my recently-opened Transfer On Death account with the Dividend Growth fund, one that I intend to contribute at least five grand to in 2019 and possibly ten.
I fully realize that we may be in the early stages of the next Recession and will certainly be keeping my eyes, ears and mind open to that. It causes me quite a bit of mental anguish, wondering if I should keep sending money to these accounts as part of Paying Ourselves First, or if I should just withdraw the same amounts in cash or stash it in a savings account for when the inevitable "Rainy Day" comes a' calling.
Well, one could say that I already shared too much info, but the point that I am trying to make is one that has made by many before me and will be made by many to come, whether they are men or women, millennials or senior citizens, adherents to the #FIRE movement or people who will be working into their seventies. The point works for those of any race, nationality, sexual preference or whatever.
That is to steadily invest in mutual funds like the Vanguard S&P 500 (my wife's IRA), Vanguard funds like Wellington or Primecap, T. Rowe Price funds like mine. Whatever the case may be.
When I sent the first few hundred dollars to my daughter's college account nearly fifteen years ago, I never imagined that it would be paying out nearly four grand in one month in Unearned and/or Passive Income.
The price of college is sky high, but pales in comparison to funding a decent retirement, or in the case of me and my wife, two decent retirements, possibly for decades.
I would have like to have bragged at least a little bit that my family collected nearly nine grand in passive income this month. But I will have to settle for sharing that we collected over seven grand in Unearned Income with the remainder considered Passive.
Working and contributing to these accounts for all these years felt like anything but passive.
Over two grand was added to my own accounts, all of which are with T. Rowe Price and include the Blue Chip Growth fund, the Capital Appreciation fund and my recently-opened Transfer On Death account with the Dividend Growth fund, one that I intend to contribute at least five grand to in 2019 and possibly ten.
I fully realize that we may be in the early stages of the next Recession and will certainly be keeping my eyes, ears and mind open to that. It causes me quite a bit of mental anguish, wondering if I should keep sending money to these accounts as part of Paying Ourselves First, or if I should just withdraw the same amounts in cash or stash it in a savings account for when the inevitable "Rainy Day" comes a' calling.
Well, one could say that I already shared too much info, but the point that I am trying to make is one that has made by many before me and will be made by many to come, whether they are men or women, millennials or senior citizens, adherents to the #FIRE movement or people who will be working into their seventies. The point works for those of any race, nationality, sexual preference or whatever.
That is to steadily invest in mutual funds like the Vanguard S&P 500 (my wife's IRA), Vanguard funds like Wellington or Primecap, T. Rowe Price funds like mine. Whatever the case may be.
When I sent the first few hundred dollars to my daughter's college account nearly fifteen years ago, I never imagined that it would be paying out nearly four grand in one month in Unearned and/or Passive Income.
I would have like to have bragged at least a little bit that my family collected nearly nine grand in passive income this month. But I will have to settle for sharing that we collected over seven grand in Unearned Income with the remainder considered Passive.
Working and contributing to these accounts for all these years felt like anything but passive.
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