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I want to invest in a mutual fund and I know that I need to keep my money invested for a full year in order to qualify for long-term capital gains tax. If I fund my account now and invest, then move that money to a different fund, does that clock continue to run from the first time I invested, or does it reset each time I move money around? |
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The answer can be complicated: You may have capital gains to pay on mutual funds, even if you don't move the money-if the mutual fund trades stocks and make a gain, that gain gets distributed to each mutual fund holder. They will send you a notice at years end re your taxable gains-they may be short or long term. If you sell your mutual funds/trade them, then yes the basis is your purchase price and your gain would be what the fund/share price appreciation since that time. If you traded in your shares in less than a year-short term gain. More than a year- long term gain. Keep in mind that you can deduct losses as well, if you sell/trade your shares for less than the purchase price. Disclaimer: By all means check with your tax adviser, as this is just my opinion and I am not a CPA or registered financial planner So basically to avoid complications (I can't control paying short-term gains tax on fund distributions) keep it in the same fund for a year. Roth IRAs don't pay any taxes so this is not a concern for them, correct? Also, you brought up an interesting point: "They will send you a notice at years end re your taxable gains-they may be short or long term." Does this mean I will have to pay taxes on earnings that I have not realized yet? If I don't withdraw my funds, I still have to pay taxes on the earnings that were accrued?
(Dec 03 '09 at 18:34)
Daniel
yes, that is one of the negatives about mutual funds. You can owe tax, even if your fund is under-water for the year and you have not sold any shares. Some funds are advertise tax efficient which means they try to minimize your taxes. You also if you transfer to another fund, even in the same family, if you have a gain, you pay tax.
(Dec 03 '09 at 22:38)
Dr Dean 1
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