Reinvested Dividends are not Taxable in Roth/Traditional IRA. But Quicken Increases Cost Basis?

Question

My question is how Quicken treats reinvested dividends in Roth and Traditional IRA accounts. I'm pretty sure reinvested dividends in these accounts should not increase cost basis, since it is not taxable. Is there a way to make all reinvested dividends cost basis as 0? Or is there something that I am missing?

markus1957 · Accepted Answer

By definition, any investment of funds in a security, including re-invested dividends increases the cost basis for the holding. AKA, how much cash did you spend to purchase your positions in the holding.  It matters not whether the account is taxable or not.

A re-invested dividend is a cash payment immediately used to purchase more of the holding. Your cost basis increases by the amount of the dividend used to buy more stock.

q_lurker · Accepted Answer

Something you are missing.  Determination of cost basis is independent of taxability.  Even though the security is owned in a non-taxable account, it still has a cost basis.  Cost basis is computed consistently in both types of accounts -- in Quicken and in many financial institutions reporting.  Because the associated capital gains are not taxable out of a non-taxable account, such accounts (401k's, IRA's, etc.) should not be included in 'tax reports' and Quicken does not include them by default.

BUT -- some financial institutions do not follow that approach.  They report no basis change associated with reinvested dividends.  On that detail, I would say such financial institutions are inconsistent and thus incorrect.  My opinion.  YMMV.

Sherlock · Accepted Answer

The purchase of shares should increase cost basis independent of whether a dividend is taxable or not.