Ask Terry Questions Mutual Fund Year End Capital Gain

Mutual Fund Year End Capital Gain

By Terry Savage on November 20, 2023 | Investments

Hi Terry
Ten years ago I opened a mutual fund that is tax inefficient and has historically distributed high capital gains. I realized five years ago, that this fund has no place in my brokerage account. I am in the 24% tax bracket and this fund has a $70,000 capital gain. I have been directing year end capital gains into an index fund in my brokerage account. This year the gain will be 13% of NAV. Instead of reinvesting the capital gain, would it be better to reinvest the capital gain for a higher tax basis? Eventually I want to liquidate this position.

Thanks, Terry

Terry Says

Wait– I’m not sure I understand your question.
First, of course, if you bought this fund inside your IRA, there is absolutely no capital gains tax involved. And you should definitely reinvest your dividends and gains distributions.

Second, who complains about a $70,000 capital gain? Yes, you’ll have to pay taxes on the distributions along the way (no matter what you do with them) — and also when you sell your fund shares.

But taxes are the price you pay for being successful!



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