| Mutual Funds: Now is the time of the year to be | | | | long and short term gains. The long term gains |
| aware of taxes on distributions! | | | | results from assets owned a year or more and |
| With the Christmas holiday just around the corner | | | | are taxed at a favorable rate, 15% for most |
| many are looking for surprises under the tree. | | | | investors and 5% for those in the 15% or 10% |
| One surprise you should be aware of before the | | | | tax brackets. Short term gains are taxed as |
| year ends are capitals gains on mutual | | | | ordinary income and the tax rate depends on |
| funds-especially taxable mutual fund accounts. | | | | your tax bracket and could be as high as 35%. |
| Capital gains in mutual funds results in the fund's | | | | Since the fund statements don't come out until in |
| sales of assets during the plan year. If the profit | | | | January you could go to the funds web site or call |
| on asset sales exceeds losses, the fund must | | | | their customer service line and find out the |
| distribute the profits to shareholders once a year, | | | | estimates of the distributions. They can also tell |
| usually in December. Losses are not passed | | | | you the dates the fund expects to make the |
| through and are used to offset gains within the | | | | distribution. |
| fund and may be carried forward up to eight | | | | Another way to reduce your tax bite is to |
| years. | | | | examine your portfolio and determine if you have |
| Many close observers of the mutual fund industry | | | | losses in other investments. If appropriate you |
| believe distributions this year could set records. So | | | | can offset gains in your funds by sell some of the |
| if you are thinking of buying a fund that is | | | | losses. |
| projected to post a big gain, you may want to | | | | One group of mutual funds that fully participate in |
| wait until after the distribution date. | | | | the market but normally pay small capital gains |
| If you buy the fund before the distribution date | | | | are index funds. They are structured to mirror |
| you will be required to pay capital gains taxes on | | | | selected stock indexes so their stock trading is |
| the distribution. The funds price will go down equal | | | | often much less than other funds. They also have |
| to the distribution so if the market drops and the | | | | very low management fees-which is another |
| shares stay down through next year you could | | | | benefit to shareholders. Many mutual fund families |
| face paying for the distribution on your 2007 | | | | offer some form of indexing funds. You also |
| taxes while having a loss for next year. | | | | might look at tax managed funds and tax |
| Also, if you have a fund that is paying a big | | | | exempt bond funds for further tax benefits. |
| distribution before the end of the year and you | | | | So you have a little time to make sure you don't |
| plan on selling it may be a good idea to sell before | | | | get surprised this year by capital gain distributions |
| the distribution. This way you avoid the extra | | | | from your taxable mutual funds. Going into next |
| capital gains from the distribution along with any | | | | year it will be something to be aware of as you |
| gain you have from the sale. | | | | manage your investments. |
| Capital gains from mutual funds can include both | | | | |