Dividend distribution options

Dividends are payments to shareholders and are distributed from current earnings or accumulated profits. You have two options for any distributions from Union Pacific Stock Fund, but dividends will automatically be reinvested in the fund unless you choose the dividend pass-through option (Option 2).

Option 1: Reinvest dividends to purchase additional shares. The money will remain tax-deferred.

Option 2: Receive dividends as a cash distribution. You will receive a direct deposit or check for the money, and you will owe ordinary income taxes on the amount you receive unless the dividends were earned on shares purchased with Roth contributions. If the dividends were earned on Company stock fund shares purchased with Roth contributions, those dividends would not be taxed provided you're at least age 59½ and have held the Roth account for at least five years.

The performance of a company stock fund depends on the price of a single stock, which can move up or down dramatically. So this type of fund can be riskier than a stock mutual fund, which may own hundreds or thousands of stocks. Because the Union Pacific Common Stock Fund concentrates on a single stock, it is considered riskier than a diversified stock fund.

The dividend payment option does not apply with respect to dividends paid on shares of Union Pacific common stock purchased with amounts attributable to a participant’s Non-Elective Contribution Account in the Union Pacific Corporation Thrift Plan.

Taxes: Taking money from your retirement account can affect how much you'll have to pay in taxes. You'll owe taxes on pre-tax money. You won't owe taxes on Roth earnings as long as you are age 59½ or older and it's been at least five years since your first Roth contribution. If required by law, Vanguard will withhold some taxes for you. You may need to pay a 10% federal penalty tax if you take money out early.