RL144 — How to Reduce Taxes on Mutual Funds
On the Retirement Lifestyle Show, Roshan Loungani, Eric Olson, and Adrian Nicholson go through how, why, and when mutual funds are taxed. They discuss how mutual fund gains are taxed and how you can improve your total portfolio returns by reducing and even eliminating taxes on your funds.
[01:31] Basics of How Mutual Funds are Taxed
[04:00] How to Ensure Your Holdings are Tax Efficient
[06:55] Why Mutual Funds Are Mostly Not Tax Efficient
[08:14] What is Portfolio Turnover?
[12:08] Mutual Fund Fees and Expenses
[13:12] Types of Mutual Funds and How They Work
[16:33] Income-Generating Components of a Mutual Fund
[18:12] Real-Life Cost Figures
[24:20] How the Top Mutual Funds Performed
[28:25] How Your Circumstances Affect Your Investment Strategy
[29:50] Parting Thoughts
For more links and the full show notes keep scrolling down!
Roshan Loungani can be reached at roshan.loungani@aretewealth.com or at 202-536-4468.
Erik Olson can be reached at erik.olson@aretewealth.com or 815-940-4652.
Adrian Nicholson can be reached at adrian.nicholson@aretewealth.com or at 703-915-8905.
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Full Show Notes:
Basics of How Mutual Funds Are Taxed
Taxes on mutual funds can be a complicated beast. For example, when you buy a mutual fund in a taxable investment account, you will have to pay taxes every year you own that long-term mutual fund. The good news is that mutual funds have a fairly predictable tax structure. The bad news is that interest and dividends are both taxed as ordinary income. So gains acquired within a year will be taxed at the investor's top marginal tax bracket. This is a major contributing factor most investors look out for before investing in mutual funds.
If you'd like to get into mutual funds, you need to understand that the way your mutual fund is taxed has a lot to do with the type of investments in the fund's portfolio. For example, when filing yearly taxes, almost all distributions you receive from a mutual fund must be declared as investment income. However, the type of investment, duration of the investment holding, and the type of distribution received are all essential factors determining the amount of income tax you pay on each dollar of a distribution. For the most part, distributions are subject to your ordinary income tax rate. But in some special cases, you may be eligible to pay the lower capital gains tax rate, while other distributions may be completely tax-free.
All opinions expressed by podcast hosts and guests are solely their own. While based on information that they believe is reliable, neither Arete Wealth nor its affiliates warrant its completeness or accuracy, nor do their opinions reflect the opinion of Arete Wealth. This podcast is for general informational purposes only, and should not be regarded as specific advice or recommendations for any individual. Before making any decisions, consult a professional.