Re: Novice tax question

In article <1137071193.614637.183660@xxxxxxxxxxxxxxxxxxxxxxxxxxxx>,
<seafh@xxxxxxx> wrote:
>While we are talking about mutual fund gain tax, I am wondering why
>most mutual funds want to distribute most gains regularly and resulted
>in tax for the owners? If it is the law, I have known some funds that
>don't do that regularly. I mean, if the owners want distribution, they
>can always withdraw some shares and they can withdraw the right amount
>that they wanted, right?
>I have heard that index funds (say S&P500) do not distribute most gains
>regularly, is that true?

Most mutual funds give you the option of having dividends and/or
capital gains distributions reinvested in the fund, or credited
directly to you. If te latter, you generally have the option to
have those funds paid to you or used to purchase money market fund
shares.

If you are asking why the mutual fund makes capitalgains
distributions, it is to save on tax.

Under the Investment Company Act of 1940, a regulated investment
company (i.e., a mutual fund) can avoid paying any tax on its
capital gains and other income if it distributes those funds to
its shareholders at least annually. If the fund did not make
these distributions, it will pay tax at a rate probably higher
than your individual rate and that tax will reduce the value of
your mutual fund shares.

So mutual funds distribute earnings (but not net loses, which
accumulate) to shareholders at least annually.
--

__
Art Kamlet ArtKamlet @ AOL.com Columbus OH K2PZH
.

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