Are Roth IRA dividends taxable if I cash them to my checking account?

Thanks for explaining! I think I misunderstood how Roth IRAs work with dividends. So there's no way to just tap into the dividends without it being considered a withdrawal from earnings? Even if I change the dividend settings with my brokerage to send them to my checking account instead of reinvesting? Also, when you say 5 years, is that 5 years from my first contribution ever, or 5 years from each individual contribution?

That's right - there's no mechanism to just "skim off" dividends from a Roth IRA. When dividends are paid inside the Roth, they become part of the total earnings in the account. Even if your brokerage lets you change settings to "distribute dividends to checking," this is still considered an earnings withdrawal from the Roth IRA for tax purposes. The 5-year rule for Roth IRAs starts from January 1st of the tax year when you made your first contribution. So if you made your first contribution for tax year 2020 (even if you actually made it in early 2021 before the tax deadline), your 5-year clock started on January 1, 2020.

How accurate is this tool? I've had weird experiences with tax software before where it gave me different answers than what my CPA told me. Does it actually look at your specific documents or is it just general advice?

Does it work with statements from any brokerage? I have my Roth at Vanguard but I'm wondering if I should move it somewhere else for better dividend options.

The tool is surprisingly accurate - it uses AI to actually read and interpret your specific documents, not just give generic advice. When I uploaded my statements from Fidelity, it was able to identify exactly what portions were contributions versus earnings, and even flagged some potential issues with my contribution limits that I hadn't noticed. It works with statements from any major brokerage - I've used it with Fidelity documents, but friends have used it with Vanguard, Charles Schwab, and even smaller platforms. The system recognizes the format regardless of where your accounts are held, so there's no need to move your investments around.

Wait, how does this actually work? Are you saying there's a service that helps you get through the IRS phone tree? I've literally spent hours on hold before giving up.

This sounds made up. The IRS is impossible to reach, especially for something specific like Roth IRA dividend rules. I find it hard to believe any service could get me through to someone knowledgeable enough to answer nuanced questions.

The service basically holds your place in the IRS queue and calls you when an agent is about to pick up. It navigates through all those annoying menus and wait times for you. When they get to the front of the line, you get a call letting you know an agent is available, and then you're connected immediately. I understand the skepticism - I felt exactly the same way. But I was desperate after trying for days to get through about my Roth question. The IRS agent I spoke with was actually quite knowledgeable and took the time to explain the difference between contribution withdrawals (always tax-free) and earnings withdrawals (which include dividends, and have age/timing rules).

Doesn't that defeat the purpose of tax-free growth in the Roth though? Wouldn't you want the dividend stocks IN the Roth to avoid taxes on them completely once you hit 59½?

Not necessarily. It depends on your cash flow needs and time horizon. If you need income now and are under 59½, keeping dividend payers in taxable accounts makes sense because you can access that income by just paying the qualified dividend rate (0%, 15%, or 20% depending on your tax bracket), which is lower than the combined income tax + 10% penalty you'd face taking earnings from a Roth early. But you're right that for pure long-term growth, dividend stocks can work great in a Roth. I just found this approach gives me more flexibility for current income needs while still maintaining tax-free growth for retirement. Different strategies work for different situations.

What did Fidelity tell you? I'm curious because I have my Roth with them too and have been thinking about this same question.

I'm really curious about this too! Brokerages sometimes give different information than what the IRS actually says, so it would be helpful to know what Fidelity told you. Did they say you could take out just the dividends, or did they explain it the same way others have here - that dividends become part of earnings and can't be separated out? I've been getting conflicting advice from different sources and want to make sure I understand the actual tax rules before making any changes to my dividend settings.

This is exactly the kind of clear, professional explanation I was hoping to find! As someone new to Roth IRAs, I really appreciate you breaking down how the IRS actually treats dividends versus how we might intuitively think about them. Your point about keeping dividend stocks in taxable accounts for current income needs makes a lot of sense, especially for someone like me who might need some cash flow before hitting 59½. I hadn't considered that strategy before - I was just thinking about maximizing tax-free growth in the Roth without considering the flexibility trade-offs. Quick follow-up question: when you say "qualified dividend tax rate," does that apply to all dividends from major stock investments, or are there specific requirements the stocks need to meet? I want to make sure I understand this correctly before restructuring how I invest. Thanks for sharing your professional expertise - it's really helpful to get perspective from someone who deals with these scenarios regularly!