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Tax Planning: Don’t Buy Mutual Funds’ Cap Gain Distributions

October 24, 2019 By E.J. Smith

By Lemau Studio @ Shutterstock.com

When you invest in your retirement life, it’s paramount you harness the advantages of a tax-efficient investment strategy.

One strategy is to avoid surprise year-end capital gains distributions from mutual funds.

Year-end distributions are why I prefer having individual, dividend-paying stocks in a brokerage account rather than the uncertainty that comes with mutual funds around this time of year.

Take caution. Be prudent. Do not buy a fund around this time of year to immediately be on the hook for a tax gain.

It’s like showing up for dinner, after it’s been eaten, and being stuck with the bill.

Tom Herman writes at The Wall Street Journal:

Capital-gains distributions represent “a fund’s net gains, if any, from the sale of securities held in its portfolio,” the Investment Company Institute says in its latest Fact Book. During 2018, mutual funds distributed $511 billion in capital gains to shareholders, the ICI says. About 31% of that amount went to taxable household accounts. Most distributions typically occur in the fourth quarter, usually during November and December. For investments in taxable accounts, those distributions typically are taxable—even if the taxpayer made an investment in the fund shortly before the date to qualify for the payout.

Read more here.

Originally posted on Your Survival Guy. 

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E.J. Smith
E.J. Smith is Founder of YourSurvivalGuy.com, Managing Director at Richard C. Young & Co., Ltd., a Managing Editor of Richardcyoung.com, and Editor-in-Chief of Youngresearch.com. His focus at all times is on preparing clients and readers for “Times Like These.” E.J. graduated from Babson College in Wellesley, Massachusetts, with a B.S. in finance and investments. In 1995, E.J. began his investment career at Fidelity Investments in Boston before joining Richard C. Young & Co., Ltd. in 1998. E.J. has trained at Sig Sauer Academy in Epping, NH. His first drum set was a 5-piece Slingerland with Zilldjians. He grew-up worshiping Neil Peart (RIP) of the band Rush, and loves the song Tom Sawyer—the name of his family’s boat, a Grady-White Canyon 306. He grew up in Mattapoisett, MA, an idyllic small town on the water near Cape Cod. He spends time in Newport, RI and Bartlett, NH—both as far away from Wall Street as one could mentally get. The Newport office is on a quiet, tree lined street not far from the harbor and the log cabin in Bartlett, NH, the “Live Free or Die” state, sits on the edge of the White Mountain National Forest. He enjoys spending time in Key West and Paris.

Please get in touch with E.J. at ejsmith@youngresearch.com
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