That Was A Fail!

In the vernacular of my teenage granddaughter when she finds that my strategies didn’t quite pan out as expected,  “That was a Fail, Grandad“.  I have to concur, it was a fail.  Not a large one, but a Fail nonetheless.  In a recent post, Retire Before Dad railed against DRIP plan fee increases.  While generally in agreement with his sentiments, I now have to add a caveat to his view.  Yesterday I initiated the process of opening a new DRIP account with AST.  All because of the Fail.

One of my strategies is to invest in companies that pay a portion of their dividends as a stock dividend.  One of these is Hawthorne Bancshares , which paid both a stock and cash dividend on July 1st.  Imagine my surprise to find this entry in my Schwab account:

as of07/01/2016
Cash In Lieu HWBK

I did receive the the full shares I was expecting, however fractional shares were paid in cash.  Even though Schwab applies fractional shares to this account via dividend reinvestment.

Granted, $5.72 is not a significant amount in and of itself – but if I had completed the account consolidation of the other companies the impact could have been greater.  As it stands, HWBK was the one I chose to use to test Schwab’s system – and the test did not meet expectations.  The good news is that the fees associated with the transfer to AST will be waived.  AST as the transfer agent for HWBK does apply full and fractional to stock dividends (so they say).  This $5.72 became a taxable event rather than a tax deferred event.

And the real importance?  Medicare premiums.  When eligible for Medicare, the premium is based on ones AGI with penalties (higher rates) assessed the greater the income.  Deferring income rises to an art form particularly when perched on the bracket between rate bands.

As usual, there are exceptions to the rules.  So RBD, you can add this one to your list!