A Financial Revolution 


January 13, 2006
Four Ways to Reduce Taxes on Mutual Funds
  1. Don't write checks on your fund account. Each time you write a check, you're selling shares in the fund and realizing a loss or gain that must be reported on your tax return.
  2. Don't trade frequently. Moving money from one fund to another creates a taxable transaction.
  3. Don't buy mutual funds in November or December. If you buy a fund before a fund distributes its capital gains, you will be taxed on part of your investment. For example, if you put $1,000 in a fund priced at $10/share and it subsequently pays out $1 in capital gains, the price will fall to $9. If you reinvest the gains, you'll still have a $1,000 investment and a taxable gain of $100.
  4. Invest in ETFs or tax-efficient funds. Tax efficiency is based on the trading frequency of a fund manager. Look for funds with low investment turnover. For more info on tax efficiency, check out Money's Ask the Expert.


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