Tips for Reducing Mutual Fund Taxes

Mutual funds are a great financial option for many people in a variety of situations. With that said, however, taxation does often apply to mutual funds, and it can sometimes be steep if you don’t know what you’re doing.   

The good news, however, is that, with the right professional help and the willingness to follow a few simple tips, you may be able to reduce how much you pay in taxes and maybe even increase your net investment returns.

Remember, Lump Sum Distributions are Rarely Your Friend

Sometimes, you may have the option of taking a lump sum distribution from your mutual fund. However, this will rarely work in your favor tax-wise.

Instead, you may be much better off accepting a rollover or small, spread-out distributions, depending on the type of mutual fund you have.

If you’re unsure of whether a lump sum is smart for you and your needs, of how to avoid one, or of other options that exist, talk with a financial professional before making any decisions.

Take Note of Capital Gains Distribution Estimates

All mutual funds, regardless of type, are required to distribute 95% of any net capital gains to shareholders.

While this is unavoidable, the good thing is that estimates are made available to you late in the tax year, typically around October.

The smart thing to do is to take notice of these estimates as soon as they are are available and then to make plans, preferably with a financial professional, about how you will handle them.

These are actually just a couple of many great tips and strategies that can be useful for reducing mutual fund taxes and/or their impact on you. However, what tips you should follow depend heavily on the exact details of your situation, which is why professional financial advising is always going to be your best choice.