When mutual funds sell investments throughout the year, any profits from those transactions get passed on to the fund’s shareholders via capital gains distributions.
If your mutual funds are in a taxable account — i.e., a brokerage account — you’ll owe taxes on the gains for the year they were distributed.
However, if you hold mutual funds in a tax-advantaged account — i.e., 401(k) plan or an individual retirement account — you don’t need to worry about it because gains are deferred until you withdraw money in retirement.
“If you’re a long-term investor, it’s not a big deal,” McAleer said. “It’s the short-term investor’s dilemma.”
Generally speaking, capital gains are less likely with ETFs, due to how they are constructed and how they are traded. This makes them generally more tax-efficient.
from Update News Zone http://bit.ly/2DW6uv7
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