If I put dividend-paying stocks in my IRA, where does the dividend go when paid?
The dividend goes into the IRA (either reinvested automatically or remains as cash until you invest it, per your choice). You're not taxed on this dividend (IRA is a taxed-deferred account - you're taxed on the distributions, but not on the capital gains within the account).
The dividend quoted on a site like the one you linked to on Yahoo shows what 1 investor owning 1 share received from the company. It is not adjusted at all for taxes. (Actually some dividend quotes are adjusted but not for taxes... see below.)  It is not adjusted because most dividends are taxed as ordinary income. This means different rates for different people, and so for simplicity's sake the quotes just show what an investor would be paid.  You're responsible for calculating and paying your own taxes.  From the IRS website: Ordinary Dividends Ordinary (taxable) dividends are the most common type of distribution from a corporation or a mutual fund. They are paid out of earnings and profits and are ordinary income to you. This means they are not capital gains. You can assume that any dividend you receive on common or preferred stock is an ordinary dividend unless the paying corporation or mutual fund tells you otherwise. Ordinary dividends will be shown in box 1a of the Form 1099-DIV you receive. Now my disclaimer... what you see on a normal stock quote for dividend in Yahoo or Google Finance is adjusted. (Like here for GE.) Many corporations actually pay out quarterly dividends. So the number shown for a dividend will be the most recent quarterly dividend [times] 4 quarters. To find out what you would receive as an actual payment, you would need to divide GE's current $0.76 dividend by 4 quarters... $0.19. So you would receive that amount for each share of stock you owned in GE. Don't ever quantify a stock's preference/performance just based on the dividend it is paying out Volatility defined by movements in the the stock's price, affected by factors embedded in the stock e.g. the corporation, the business it is in, the economy, the management etc etc. Apple wasn't paying dividends but people were still buying into it. Same with Amazon, Berkshire, Google. These companies create value by investing their earnings back into their company and this is reflected in their share prices. Their earnings create more value in this way for the stockholders. The holding structures of these companies also help them in their motives. Supposedly $100 invested in either stocks. For keeping things easy, you invested at the same time in both, single annual dividend and prices more or less remain constant. Company A: $5/share at 20% annual dividend yield.  Dividend = $20 Company B: $10/share at 20% annual dividend yield  Dividend = $20 You receive the same dividend in both cases. Volatility willn't affect you unless you are trading, or the stock market tanks, or some very bad news comes out of either company or on the economy. Volatility in the long term averages out, except in specific outlier cases e.g. Lehman bankruptcy and the financial crash which are rare but do happen. In general case the %price movements in both stocks would more or less follow the markets (not exactly though) except when relevant news for either corporations come out. Two more esoteric differences, related to the same cause... When you have an outstanding debit balance in a margin the broker may lend out your securities to short sellers.  (They may well be able to lend them out even if there's no debit balance -- check your account agreement and relevant regulations).   You'll never know this (there's no indication in your account of it) unless you ask, and maybe not even then. If the securities pay out dividends while lent out, you don't get the dividends (directly).  The dividends go to the person who bought them from the short-seller.  The short-seller has to pay the dividend amount to his broker who pays them to your broker who pays them to you.  If the dividends that were paid out by the security were qualified dividends (15% max rate) the qualified-ness goes to the person who bought the security from the short-seller.  What you received weren't dividends at all, but a payment-in-lieu of dividends and qualified dividend treatment isn't available for them.   Some (many?  all?) brokers will pay you a gross-up payment to compensate you for the extra tax you had to pay due to your qualified dividends on that security not actually being qualified. A similar thing happens if there's a shareholder vote.  If the stock was lent out on the record date to establish voting eligibility, the person eligible to vote is the person who bought them from the short-seller, not you.  So if for some reason you really want/need to vote in a shareholder vote, call your broker and ask them to journal the shares in question over to the cash side of your account before the record date for determining voting eligibility. Securities (things you can buy on the stock market)  that pay dividends usually pay every quarter (every three months), but some pay every month. (For example: PGF pays dividends each month.) IF you reinvest your dividends back into the stock then you will be compounding your return.  I use the feature at Scottrade to automatically reinvest the dividend each month. Using this feature at Scottrade incurs no commission for the purchases of the stock from the dividend. (saving on commissions and fees is, likely, the most important aspect of investing).  US Treasuries (usually) pay interest twice a year. There is no commission when using Treasury Direct. In a (not Roth) IRA, withdrawals are generally already taxed as regular income. So there should be no tax disadvantage to earning payment in lieu of dividends.  It's possible that there is an exception for IRAs but I was unable to find one and I cannot see the reason for one since the dividend tax rate is usually lower than the income tax rate (which is why some company owners elect to receive part of the company profits via dividend rather than all through their salary). Assuming a USA taxable account: Withdrawing funds from a brokerage account has nothing to do with taxes. Taxes are owed on the profit when you sell a stock, no matter what you do with the funds. Taxes are owed on any dividends the stock produces, no matter what you do with the dividend. The brokerage sends you a form 1099 each year that shows the amounts of dividends and profits. You have to figure out the taxes from that. It depends on your investment profile but basically, dividends increase your taxable income. Anyone making an income will effectively get 'lower returns' on their investments due to this effect. If you had the choice between identical shares that either give a dividend or don't, you'll find that stock that pays a dividend has a lower price, and increases in value more slowly than stock that doesn't. (all other things being equal)  There's a whole bunch of economic theory behind this but in short, the current stock price is a measure of how much the company is worth combined with an estimation of how much it will be worth in the future (NPV of all future dividends is the basic model). When the company makes profit, it can keep those profits, and invest in new projects or distribute a portion of those profits to shareholders (aka dividends). Distributing the value to shareholders reduces the value of the company somewhat, but the shareholders get the money now. If the company doesn't give dividends, it has a higher value which will be reflected in a higher stock price.  So basically, all other things being equal (which they rarely are, but I digress) the price and growth difference reflects the fact that dividends are paying out now. (In other words, if you wanted non-dividend shares you could get them by buying dividend shares and re-investing the dividend as new shares every time there was a payout, and you could get dividend-share like properties by selling a percentage of non-dividend shares periodically). Dividend income is taxable as part of your income right away, however taxes on capital gains only happen when you sell the asset in question, and also has a lower tax rate. If you buy and hold Berkshire Hatheway, you will not have to pay taxes on the gains you get until you decide to sell the shares, and even then the tax rate will be lower. If you are investing for retirement, this is great, since your income from other sources will be lower, so you can afford to be taxed then. In many jurisdictions, income from capital gains is subject to a different tax rate than the rest of your income, for example in the US for most people with money to invest it's either 15% or 20%, which will be lower than normal income tax would be (since most people with money to invest would be making enough to be in a higher bracket). Say, for example, your income now is within the 25% bracket. Any dividend you get will be taxed at that rate, so let's say that the dividend is about 2% and the growth of the stock is about 4%. So, your effective growth rate after taxation is 5.5% -- you lose 0.5% from the 25% tax on the dividend. If, instead, you had stock with the same growth but no dividend it would grow at a rate of 6%. If you never withdrew the money, after 20 years, $1 in the dividend stock would be worth ~$2.92 (1.055^20), whereas $1 in the non-dividend stock would be worth ~$3.21 (1.06^20). You're talking about a difference of 30 cents per dollar invested, which doesn't seem huge but multiply it by 100,000 and you've got yourself enough money to renovate your house purely out of money that would have gone to the government instead. The advantage here is if you are saving up for retirement, when you retire you won't have much income so the tax on the gains (even ignoring the capital gains effect above) will definitely be less then when you were working, however if you had a dividend stock you would have been paying taxes on the dividend, at a higher rate, throughout the lifetime of the investment.  So, there you go, that's what Mohnish Pabrai is talking about. There are some caveats to this. If the amount you are investing isn't large, and you are in a lower tax bracket, and the stock pays out relatively low dividends you won't really feel the difference much, even though it's there. Also, dividend vs. no dividend is hardly the highest priority when deciding what company to invest in, and you'll practically never be able to find identical companies that differ only on dividend/no dividend, so if you find a great buy you may not have a choice in the matter.  Also, there has been a trend in recent years to also make capital gains tax progressive, so people who have a higher income will also pay more in capital gains, which negates part of the benefit of non-dividend stocks (but doesn't change the growth rate effects before the sale).  There are also some theoretical arguments that dividend-paying companies should have stronger shareholders (since the company has less capital, it has to 'play nice' to get money either from new shares or from banks, which leads to less risky behavior) but it's not so cut-and-dried in real life. The stock will slowly gain that $1 during the year. Suppose we have the highly theoretical situation that a company's stock is worth exactly $10 right after it paid its dividend, its dividend is always $1 per stock, and the company and everything else is so stable that its value never changes. Then the stock value right before the next dividend is paid will be close to $11 -- after all, it's worth a certain $1 dividend the next day, plus the $10 stock. And in between, half a year after the dividend was paid, it will be in between, say $10.50, or actually slightly less than that (because people like to buy in late so they can make money some other way with the money first). But the point holds -- the price decrease on the day that dividend is paid had been building up the whole period before that decrease. So stock dividends do make you money. There are 3 options (option 2 may not be available to you) When you invest 18,000 in a Traditional 401k, you don't pay taxes on the 18k the year you invest, but you pay taxes as you withdraw.  There's a Required Minimum Distribution required after age 70.  If your income is low enough, you won't pay taxes on your withdrawals.  Otherwise, you pay as if it is income.  However, you don't pay payroll tax (Social Security / Medicare) on the withdrawals.  You pay no tax until you withdraw. When you invest 18,000 in a Roth 401k, you pay income tax on the 18,000 in the year it's invested, but you pay nothing after that. When you invest 18,000 in a taxable investment account, you pay income tax on that 18,000 in the year it's invested, you pay tax on dividends (even if they're re-invested), and then you pay capital gains tax when you withdraw. But remember, tax rules and tax rates are only good so long as Congress doesn't change the applicable laws. During the course of the year, the S&P individual stocks will have some dividends. Not every last stock but a good number of them. Enough that the average dividend for the S&P has been about 2% recently.  So if the S&P index goes up, say 10%, an S&P fund should go up closer to 12%. For a fund holder, you'd normally see a declared dividend and cap gain distribution toward the end of each year. When you hold shares in a 401(k), dividends are reinvested into the fund, usually with no involvement from the members. I can make that election to pay taxes now (even though they aren't vested) based on the dollar value at the time they are granted? That is correct. You must file the election with the IRS within 30 days after the grant (and then attach a copy to that year's tax return). would I not pay any taxes on the gains because I already claimed them as income? No, you claim income based on the grant value, the gains after that are your taxable capital gains. The difference is that if you don't use 83(b) election - that would not be capital gains, but rather ordinary salary income. what happens if I quit / get terminated after paying taxes on un-vested shares? Do I lose those taxes, or do I get it back in a refund next year? Or would it be a deduction next year? You lose these taxes. That's the risk you're taking. Generally 83(b) election is not very useful for RSUs of established public companies. You take a large risk of forfeited taxes to save the difference between capital gains and ordinary gains, which is not all that much. It is very useful when you're in a startup with valuations growing rapidly but stocks not yet publicly trading, which means that if you pay tax on vest you'll pay much more and won't have stocks to sell to cover for that, while the amounts you put at risk are relatively small. It appears from your description that the 401k account has the automatic dividend reinvestment policy, and that the end result is exactly the same as the external account with the same policy. I.e.: no difference, the dividend affected the 401k account in exactly the same way it affected the external account. The only thing is that for external account you can take the dividend distribution, while for 401k you cannot - it is reinvested automatically. Were you expecting something else? You're misunderstanding the concept of retirement savings. IRA distributions are taxed, in their entirety, as ordinary income. If you withdraw before the retirement age, additional 10% penalty is added. Investment income has preferential treatment - long term capital gains and qualified dividends are taxed at lower rates than ordinary income. However, IRA contributions are tax deductible. I.e.: you don't pay taxes on the amounts contributed to the IRA when you earned the money, only when you withdraw. In the mean time, the money is growing, tax free, based on your investments. Anything inside the IRA is tax free, including dividends, distributions (from funds to your IRA, not from IRA to you), capital gains, etc. This is very powerful, when taking into account the compounding effect of reinvesting your dividends/sale proceeds without taking a chunk out for taxes. Consider you make an investment in a fund that appreciated 100% in half a year. You cash out to reinvest in something less volatile to lock the gains. In a regular account - you pay taxes when you sell, based on your brackets. In the IRA you reinvest all of your sale proceeds. That would be ~25-35% more of the gains to reinvest and continue working for you! However, if you decide to withdraw - you pay ordinary rate taxes on the whole amount. If you would invest in a single fund for 30 years in a regular account - you'd pay 20% capital gains tax (on the appreciation, not the dividends). In the IRA, if you invest in the same fund for the same period - you'll pay your ordinary income rates. However, the benefit of reinvesting dividends tax-free softens the blow somewhat, but that's much harder to quantify. Bottom line: if you want to plan for retirement - plan for retirment. Otherwise - IRA is not an investment vehicle. Also consider Roth IRA/conversions. Roth IRA has the benefit of tax free distributions at retirement. If your current tax bracket is at 20%, for example, contributing $5K to Roth IRA instead of a traditional will cost you $1K of taxes now, but will save you all the taxes during the retirement (for the distributions from the Roth IRA). It may be very much worth your while, especially if you can contribute directly to Roth IRA (there are some income limitations and phaseouts). You can withdraw contributions (but not earnings) from Roth IRA - something you cannot do with a traditional IRA. Annuities, like life insurance, are sold rather than bought.  Once upon a time, IRAs inherited from a non-spouse  required the beneficiary to  (a) take all the money out within 5 years, or  (b) choose to receive the value of the IRA at the time of  the IRA owner's death in equal installments over the expected  lifetime of the beneficiary.  If the latter option was chosen, the IRA custodian issued the  fixed-term annuity in return for the IRA assets. If the IRA  was invested in (say) 15000 shares of IBM stock, that stock  would then belong to the IRA custodian who was obligated to  pay $x per year to the beneficiary for the next 23 years (say). There was no investment any more that could be transferred  to another broker, or be sold and the proceeds invested in Facebook stock (say).  Nor was the custodian under any  obligation to do anything except pay $x per year to the  beneficiary for the 23 years. Financial planners loved to get at this money under the old IRA rules by suggesting that if all the IRA money were taken out and invested in stocks or mutual funds through  their company, the company would pay a guaranteed $y  per year, would pay more than $y in each year that the  investments did well, would continue payment until the  beneficiary died (or till the death of the beneficiary  or beneficiary's spouse - whoever died later), and would return the entire sum invested (less payouts already made, of course) in case of premature death. $y typically would be a little larger than $x too, because it factored in some earnings of the investment over the years. So what was not to like? Of course, the commissions earned by the planner and the lousy mutual funds and the huge surrender charges were  always glossed over. Yes it is (legal). There is of course no law requiring any business you walk in to break your money. What made you think there would be? Being a bank in the US (and in other countries) has some legal consequences, but none of them relates to 'having to do business with anyone that walks in', neither 'having to break bills for people' (not even for established customers). Yes, it was historically commonplace for most banks to do all money-breaking for free, but that does not establish any obligation to do it. Maybe the FED is required to do that, but that won't help you if you don't live near either.