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Trending: Top 3 California Municipal Bond Funds
Justin Kuepper
|
Municipal bonds have been a safe haven within fixed income markets that have...
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The good news is that tax-managed funds can avoid these tax pitfalls. Investors may want to consider allocating some of their portfolio to these alternatives in order to mitigate the risk of unexpected tax exposure in 2020 and beyond.
Let’s take a closer look at how mutual funds are taxed, why they could incur surprise taxes and how tax-managed funds can help reduce that tax exposure.
Use the Mutual Funds Screener to find the funds that meet your investment criteria.
There are two relevant types of capital gains:
During normal market conditions, professional money managers maintain long-term positions and fund owners only pay tax on dividend income and minor portfolio rebalancing transactions. These taxes are minimal, assuming the funds don’t experience any capital outflows, and most investors hardly notice them each year when paying their taxes.
The COVID-19 outbreak has already sparked panic-selling on the part of fund owners. As fund owners sell, money managers must sell investments in the mutual fund to generate the cash needed to pay those investors. These redemptions trigger capital gains taxes that are passed on to the remaining fund owners that haven’t sold anything.
In some cases, fund owners may be forced to pay large amounts of tax on shares that they have only owned for a short period of time. They could have purchased the fund a few weeks ago, realized a large loss during the timeframe, and still be responsible for paying capital gains that have accrued over the past five years or more.
Learn more about mutual funds here.
Tax-managed mutual funds are another option to avoid these situations while still holding mutual funds in taxable accounts. Professional money managers for these funds focus on minimizing capital gains distributions using a variety of different tax strategies.
Some ways they reduce tax exposure include:
Many mutual fund companies offer tax-managed funds that hold a variety of different assets, such as balanced funds, international funds, small cap funds and others.
Popular tax-managed funds include:
Don’t forget to click here to learn more about how tax-managed funds work.
Type of Account | Type of Mutual Fund |
---|---|
Tax-advantaged Accounts | Taxable bonds or index funds | Actively managed stock funds |
Taxable Accounts | Tax-managed stock funds | Municipal bond funds | Taxable bond funds |
Be sure to check our News section to keep track of the latest updates from the mutual fund industry.
Receive email updates about best performers, news, CE accredited webcasts and more.
News
Justin Kuepper
|
Municipal bonds have been a safe haven within fixed income markets that have...
Kristan Wojnar, RCC™
|
We are exploring the topics of virtual nonverbal communication, getting your blogs to...
Justin Kuepper
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Let’s take a look at a few key pieces of advice to stop...
Find out why $30 trillon is invested in mutual funds.
Download our free report
Find out why $30 trillon is invested in mutual funds.
Download our free report
Find out why $30 trillon is invested in mutual funds.
Mutual Fund Education
Justin Kuepper
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Let's take a closer look at how ESG investments have outperformed during the...
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Daniel Cross
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While CITs and mutual funds share many similarities, there are some key differences...
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Sam Bourgi
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The phrase ‘bear market’ has been thrown around a lot lately, but it...
The good news is that tax-managed funds can avoid these tax pitfalls. Investors may want to consider allocating some of their portfolio to these alternatives in order to mitigate the risk of unexpected tax exposure in 2020 and beyond.
Let’s take a closer look at how mutual funds are taxed, why they could incur surprise taxes and how tax-managed funds can help reduce that tax exposure.
Use the Mutual Funds Screener to find the funds that meet your investment criteria.
There are two relevant types of capital gains:
During normal market conditions, professional money managers maintain long-term positions and fund owners only pay tax on dividend income and minor portfolio rebalancing transactions. These taxes are minimal, assuming the funds don’t experience any capital outflows, and most investors hardly notice them each year when paying their taxes.
The COVID-19 outbreak has already sparked panic-selling on the part of fund owners. As fund owners sell, money managers must sell investments in the mutual fund to generate the cash needed to pay those investors. These redemptions trigger capital gains taxes that are passed on to the remaining fund owners that haven’t sold anything.
In some cases, fund owners may be forced to pay large amounts of tax on shares that they have only owned for a short period of time. They could have purchased the fund a few weeks ago, realized a large loss during the timeframe, and still be responsible for paying capital gains that have accrued over the past five years or more.
Learn more about mutual funds here.
Tax-managed mutual funds are another option to avoid these situations while still holding mutual funds in taxable accounts. Professional money managers for these funds focus on minimizing capital gains distributions using a variety of different tax strategies.
Some ways they reduce tax exposure include:
Many mutual fund companies offer tax-managed funds that hold a variety of different assets, such as balanced funds, international funds, small cap funds and others.
Popular tax-managed funds include:
Don’t forget to click here to learn more about how tax-managed funds work.
Type of Account | Type of Mutual Fund |
---|---|
Tax-advantaged Accounts | Taxable bonds or index funds | Actively managed stock funds |
Taxable Accounts | Tax-managed stock funds | Municipal bond funds | Taxable bond funds |
Be sure to check our News section to keep track of the latest updates from the mutual fund industry.
Receive email updates about best performers, news, CE accredited webcasts and more.
News
Justin Kuepper
|
Municipal bonds have been a safe haven within fixed income markets that have...
Kristan Wojnar, RCC™
|
We are exploring the topics of virtual nonverbal communication, getting your blogs to...
Justin Kuepper
|
Let’s take a look at a few key pieces of advice to stop...
Find out why $30 trillon is invested in mutual funds.
Download our free report
Find out why $30 trillon is invested in mutual funds.
Download our free report
Find out why $30 trillon is invested in mutual funds.
Mutual Fund Education
Justin Kuepper
|
Let's take a closer look at how ESG investments have outperformed during the...
Mutual Fund Education
Daniel Cross
|
While CITs and mutual funds share many similarities, there are some key differences...
Mutual Fund Education
Sam Bourgi
|
The phrase ‘bear market’ has been thrown around a lot lately, but it...