Thread: A Time To Buy/And A Time To Sell

A Time To Buy

Don't invest in mutual funds just before a capital gains distribution,
which usually occurs near year-end. If you do, you'll get a partial
return of capital, along with a tax bill.

Suppose that a mutual fund makes a $2-per-share capital gains distribution
in December. You'll get $2 per share while the fund's net asset value and
trading price drops by $2 per share. That $2 per share will be taxable
income to you, even if you invested the day before the distribution.

You'd be better off waiting until after the distribution to buy the fund.
Then you'll pay a lower price and avoid the tax bill. Therefore, check
with any mutual fund before you buy to find out the "record date" of the
distribution, then buy afterwards.

A Time To Sell

If you intend to sell mutual fund shares at a long-term capital gain, you
probably should sell before the year-end distribution. Such a distribution
might include long-term gains, short-term gains, and dividends that do not
qualify for the bargain 15 percent rate on stock dividends.

If you hold onto those shares until after you receive that distribution,
some of that payout (the short-term gains and nonqualified dividends) may
be subject to a federal tax rate as high as 35 percent. Instead, if you
sell before the distribution and you've held all the shares for more than
one year, all of your gain will qualify as long-term, with federal tax
rates at 15 percent or lower.

Swsop