when a corporation earns a profit it can reinvest the funds in the business but may also pay a portion of the profit to shareholders in the form of a dividend sometimes the company offers a dividend reinvestment plan where the amount can be applied to buying additional shares of the stock or fund 
without a reinvestment plan the funds flow into the investor s account as cash investment trust distributionsthe income generated from an investment trust is awarded to investors typically as a monthly or quarterly distribution for this reason distributions function similarly to stock dividends however distributions typically offer higher yields that can be as high as 10 a year the distributions received lower a trust s taxable income and as a result little or no income tax is paid 1mutual fund owners can reinvest their distributions at the fund s net asset value on the ex dividend date settles in one day etf owners meanwhile have to wait a few business days to reinvest their distributions usually takes three days to settle 2retirement account distributionsdistributions from a traditional individual retirement account ira can happen at any time after the creation of the account retirement account distributions fall into two categories 3roth iras also generally require the funds to remain in the account until age 59 before distribution after the account has been in existence for a certain number of years account holders may withdraw funds early but will pay penalty fees if they withdraw a sum greater than their contributions if the distribution includes the account s earnings in other words 4other retirement accounts also have age limitations for withdrawals without penalties distributions from qualified plans such as 403 b accounts and 457 plans are two examples of such plans specific public school employees members of religious orders and other tax exempt groups have 403 b plans 5 the 457 plans contain deferred salary contributions and are mainly used by state and local governments 6required distributions from retirement plansexcept for the roth ira all retirement plans mentioned earlier require the holder to begin withdrawing funds once they reach the age of 73 if they were born between 1951 and 1959 or 75 if they were born in 1960 or after the exact amount of this annual required minimum distribution rmd depends on the account holder s age and the value of funds in the account as per irs guidelines 78all distributions from these retirement accounts are taxed based on the individual s tax bracket at the time of withdrawal the tax assessment reflects the fact that contributions to the account were made with pretax dollars note that only distributions from roth iras or roth 401 k s can be taken without income tax being due on them because roth contributions are made with after tax dollars the investor didn t receive a tax deduction or credit at the time further the roth accounts do not have the required minimum distributions at any age 9real world examplethe fidelity 500 index fund fxaix which seeks to duplicate the performance of the s p 500 disburses dividend distributions quarterly in april july october and december 10in 2022 investors received 0 462 0 577 0 581 and 0 636 for every share of the fund they owned for april july october and december respectively 10 unless a customer specifies otherwise fidelity automatically reinvests these distributions increasing the number of shares of the fund owned 