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When To Watch Out For A Fund’s Holiday Bonus

When to Watch out for a Fund’s Holiday Bonus

Capital gains are usually a good thing: As investors, our goal is to earn a fair return on our money. However, capital gains distributions from mutual funds and exchange-traded funds (ETFs) also create a potential tax liability for any investor receiving them. Depending on your specific circumstances, you could owe a hefty tax on those distributions. Fortunately, that’s something investors can look to plan around.

While funds trade their investments throughout the year, most of them tend to distribute the capital gains earned on those investments at the end of each year in December, just in time for them to look like a holiday bonus. If you’ve been invested in the fund all year, that distribution is a well-earned component of your returns on the fund. However, if you decide to buy new shares of a fund toward the end of the year, you could be paying taxes on capital gains that the fund took the previous January. In other words, you’re paying other investors’ taxes!

As the end of the year approaches, we suggest you check in with your Wealth Advisor to talk about any new investment choices, possible distributions, and tax implications. Many fund companies publish their expected distributions in advance, so it’s possible to get a good amount of capital gains information before you invest in a new fund. In general, we lean toward waiting until the new year to buy into funds that may have large, taxable distributions at year-end.

Of course, we’re not suggesting that anyone hold cash for a month or longer just to avoid paying taxes on distributions. Your Wealth Advisor can suggest another fund in the same asset class to use as an alternative. This way, you can keep your assets invested—but avoid sharing the tax burden of another investor’s capital gains.

 

Important Disclosure Information

Please remember that different types of investments involve varying degrees of risk, including the loss of money invested. Past performance may not be indicative of future results. Therefore, it should not be assumed that future performance of any specific investment or investment strategy, including the investments or investment strategies recommended or undertaken by RegentAtlantic Capital, LLC (“RegentAtlantic”) will be profitable. Please remember to contact RegentAtlantic if there are any changes in your personal or financial situation or investment objectives for the purpose of reviewing our previous recommendations and services, or if you wish to impose, add, or modify any reasonable restrictions to our investment management services. A copy of our current written disclosure statement discussing our advisory services and fees is available for your review upon request. This article is not a substitute for personalized advice from RegentAtlantic. This information is current only as of the date on which it was sent. The statements and opinions expressed are, however, subject to change without notice based on market and other conditions and may differ from opinions expressed in other businesses and activities of RegentAtlantic. Descriptions of RegentAtlantic’s process and strategies are based on general practice and we may make exceptions in specific cases.

Please remember that RegentAtlantic does not provide tax advice. Please discuss with a tax advisor of your choosing prior to implementing any strategies discussed in this article.

Important disclosure information

Please remember that different types of investments involve varying degrees of risk, including the loss of money invested. Past performance may not be indicative of future results. Therefore, it should not be assumed that future performance of any specific investment or investment strategy, including the investments or investment strategies recommended or undertaken by RegentAtlantic Capital, LLC (“RegentAtlantic”) will be profitable.

Please remember to contact RegentAtlantic if there are any changes in your personal or financial situation or investment objectives for the purpose of reviewing our previous recommendations and services, or if you wish to impose, add, or modify any reasonable restrictions to our investment management services. A copy of our current written disclosure statement discussing our advisory services and fees is available for your review upon request.

This article is not a substitute for personalized advice from RegentAtlantic. This article is current only as of the date on which it was sent. The statements and opinions expressed are, however, subject to change without notice based on market and other conditions and may differ from opinions expressed in other businesses and activities of RegentAtlantic. Descriptions of RegentAtlantic’s process and strategies are based on general practice and we may make exceptions in specific cases.

RegentAtlantic does not provide legal or tax advice. Please consult with a legal and or tax professional of your choosing prior to implementing any of the strategies discussed in this article.

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