John Qyindi wrote:

- quote -

Not in the vast majority of cases--a "regulated investment
company" (the IRC term for what we generally refer to as a
mutual fund) pays no income tax itself so long as it
distributes out its dividends in a timely fashion. That's
true even if most investors elect to reinvest the dividends.
Generally the *investor* pays the tax on those dividends.

However, a 401(k) plan is a tax exempt trust and so pays no
income tax either.

- quote -

Eventually--but just as you pay taxes on anything in the
401(k) when you take a distribution. But it's nothing
special about dividends. The 401(k) is a "black box" from a
tax standpoint--you don't worry about what generated the
funds available for payment (aside from some special cases
involving after tax contributions or employer securities),
just that there are funds paid out and tax to be paid on
that distribution.

--
Ed Zollars, CPA
Phoenix, Arizona

I was wondering how 401k plans treat diviedend tax.

Like if I hold a mutual fund in my 401k that mutual fund pays some
type of tax on the dividends on the stock it owns. Do I as an
investor in that fund thru the 401k end up paying dividend taxes
indirectly even though the mutual fund is in a 401k ???

Just wondering if the person that invests through a 401k is treated
differently then the person that invests in the same mutual fund but
not thru a 401k...

thanks!