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发帖数: 4796 | 1 If You Own a Mutual Fund, You Could Face an Unexpected Tax Bill This Year
Here is what you need to know.
Ryan Derousseau
Some mutual fund investors, including ones at fund giant Vanguard, could
face an unexpected tax hit this year.
Typically, mutual fund investors only have to worry about capital gains when
the market is booming — not this time around. Despite the fact that the
market is up only about 1% for 2018, investors in many funds could end up
owing taxes on gains those funds realized by trading stocks or other
securities throughout the year.
That includes several funds from Vanguard — the mutual fund giant with a
cult-like following among investors — which has long been known for it’s
prowess in helping investors avoid such pitfalls.
Vanguard’s Capital Opportunity Investor (VHCOX), for example, expects the
distribution to reach nearly 9% of the net asset value (NAV) of the fund.
Last year, the same fund had a distribution of nearly 4%. The Vanguard Mid-
Cap Growth (VMGRX) will have a 12.7% distribution, compared to 3% last year.
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A Vanguard spokesperson said, given the recent bull market, capital gins
were “not surprising,” but urged investors to consider keeping actively
managed funds — which are more likely to pass out gains than index funds —
in tax-advantaged retirement accounts like 401(k)s or IRAs.
https://twitter.com/christine_benz/status/1062115176323915777
Index Funds
While moves by Vanguard inevitably attract extra attention, fund researcher
Morningstar Inc. says that across the fund industry capital-gains
distributions are likely to be on par with last year, despite the market’s
weak performance in 2018. In 2017, when the market was up 17%, 65% of stock
funds passed out a distribution.
Why are mutual funds giving out so many gains — especially when the market
has barely risen? Blame index funds. According to Christine Benz,
Morningstar’s director of personal finance, it’s a mix of a multi-year
bull run in the market and the flight of investor money moving from actively
managed funds into index funds.
Funds try to limit capital gains distributions each year. But over the past
decade, as the market has moved forward, it has created holdings in funds
that have appreciated considerably. When investors pull their money out of a
fund, it requires the managers to sell holdings. Since actively managed
funds have seen a multi-year decline in money flowing out – including
nearly $23 billion in outflows in the last two months – it’s forcing
managers to sell holdings that had appreciated during the market run-up.
Once sold, the distributions are handed out to its investors.
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“Those distributions, in turn, are made to a reduced group of shareholders,
” wrote Benz. “That’s where big capital gains distributions come in.”
What to Do
A capital gains distribution of, say, 3% means essentially that a mutual
fund is handing you back 3% of the value of your investment in the fund.
While finds will automatically re-invest the money for you, the
distributions represent trading profits, which you must pay taxes on, unless
you hold the fund in a tax-friendly vehicle, like an IRA or 401(k).
Capital gains tax rates range from 0% to up 20%, depending on your income.
Some high earners may also owe an additional 3.8% in net investment income
tax. There are also state taxes to take into account.
There are some pieces of good news. While no one likes a surprise tax bill,
paying taxes on capital gains realized in 2018, should lower your tax bill
when you eventually do sell off your mutual fund shares. You don’t get
taxed twice.
In addition, if you have losses in another part of your investment portfolio
, you may be able to avoid paying a tax bill on this year’s capital gains
altogether. You can do that by selling your losers to create a capital loss
to offset any capital gains. However, if you do this, be aware that you can
’t repurchase the same stock within a month’s time following the sale. If
you do so, you would trigger the stock-wash rule, which would disallow the
deduction that year.
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