Vanguard question

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Im no financial genius

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Me neither so this might not be a perfect explanation or 100% accurate..

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but what does this mean? Im looking at it as I made $40 and Im curious if I will be taxed on that at the end of the year.... am I wrong?

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It depends.

If it's a regular IRA, you won't personally pay any taxes on the gains, whether gains from stock sales or from dividends etc. until you start making withdrawals from the account in retirement (at which point you pay income tax rates). If it's a Roth account, you never pay taxes at all since you already paid income tax on the money going in.

If it's a normal investment account, you pay taxes on the dividends. Even if the account is set to use the dividends to buy more shares of the mutual fund, you should still receive a statement from Vanguard at tax time saying what capital gains you owe taxes on.

To make a really simple example:

You have $100 in a mutual fund that owns 10 stocks for $10 each.

Each stock goes up $1 this year. Five of the stocks pay the $1 gain as a dividend, so you get paid $5. You owe taxes on the $5 even if you use the $5 to buy more shares of those stocks. Since you haven't sold the other stocks that did not pay dividends, you don't owe taxes on the $5 gains that those stocks made inside your mutual fund.

ETA: If the fund sells off two of the stocks and buys different ones, then we start getting into more complicated stuff when it comes to figuring out if and how much you owe in taxes.

It a Roth I'm invested in, ok that helps, Thanks