Ugh. Thanks for the info. Ugh again.

- quote -

Mark Freeland wrote:
- quote -

Thanks Mark, hadn't heard of that one!

-Tad

"Tad Borek" <borekfm[at]pacbell.net> wrote in message
news:BKv_b.16473$Ao2.13482[at]newssvr29.news.prodigy.com...
- quote -

Another exception: if 95+% of the fund's income is qualified, then the
fund's distributions are treated as (if you wish, transmuted into) 100%
qualified.
See, e.g. http://www.sandw.com/print/print_pub_item.phtml?ID=125 (look for
95)

--
Mark Freeland
nBeOwXs[at]pacbell.net

elambeth[at]hotmail.com (sm3gurpal) writes:

- quote -


No. They _may_ be taxed at a lower rate, subject to a heap
of caveats.

- quote -

No, it does not. You'll see two entries on your 1099-DIV,
indicating which are "qualified" dividends and which are not.

Your mutual fund has to break your dividends down for you.

See, for example, http://www.fairmark.com/mutual/ordinary.htm
for some information about the difference and how it's reported.


--
Plain Bread alone for e-mail, thanks. The rest gets trashed.
No HTML in E-Mail! -- http://www.expita.com/nomime.html
Are you posting responses that are easy for others to follow?
http://www.greenend.org.uk/rjk/2000/06/14/quoting

sm3gurpal wrote:
- quote -

I hate to be the bearer of bad news, but the fact that an investment is
held in a mutual fund doesn't change the nature of the income paid out.
Distributions of Treasury bond interest may be labeled as a dividend on
your form 1099, but it should be labeled a "nonqualifying dividend," as
should your taxable money-market dividends. Nonqualifying dividends do
not receive the lower tax rates.

The general rule to keep in mind is that mutual funds are just holding
tanks that pass their realized income on to the shareholders. The
distributions do not lose their "character." For some funds you might
see several different types of income listed...qualified dividends,
non-qualified dividends, short-term capital gains, long-term capital
gains, etc. All of these categories of income carry over to your tax
return just as if you held the investments directly.

One slightly "academic" exception: when you sell mutual fund shares that
you've held for more than a year, your gains would be considered
long-term capital gains - even if the fund itself had a lot of
short-term gains in the underlying portfolio. Sometimes at year-end it
can pay to sell a mutual fund before the distribution date, to avoid a
distribution of short-term capital gains.

-Tad

- quote -


Virtually all mutual funds, including money market funds, pay earnings
to investors as dividends, not as interest. Dividends, as you
apparetly know, are now taxed at a much lower rate than interest.

So, all else being equal, you're much better off to invest in a
mutual fund than in the underlying bond or money obligation, because
the mutual fund magically changes that "interest" income into
"dividends."

I moved out of long-term government bonds and into long-term
government bond index mutual funds as soon as the new tax law passed.
The change on the composition of my portfolio is minimal, but the tax
advantages are tremendous; well worth the additional expense ratio
borne by a fund over an individual security.

Ed Zollars, CPA <ezollar[at]mindspring.com> wrote:

- quote -

I'll have to mention this problem to clients with significant
brokerage accounts and suggest that they contact their broker for
clarification as to whether it impact them. I know some of these
clients fully expect the tax break and will probably go
"ballistic" if they don't get it. So, I wouldn't be surprised if
we see some changes in brokers over the next 18 months (or so) if
clients can't get straight answers to this question. <g
MTW

no wrote:

- quote -

No. They most likely qualify to be taxed at the *rate* for
long term capital gains, but they are not long term capital
gains. The distinction is that your dividends from Bank of
America cannot offset capital losses. However, a gain from
selling Bank of American stock held for over a year

- quote -

No, however there are rules that will cause the dividend to
be considered nonqualifying (not taxed at capital gains
rates) if you hold the stock for less than 60 days, engage
in short selling of the underlying security or, potentially,
have your shares in an account where the broker is allowed
to "loan out" the shares.

That last part is the "interesting" problem in the law. The
brokers have been given a "free pass" this year on the
matter administratively by the IRS, but next year they have
to bite the bullet. When you short sell securities, the
broker "borrows" those shares from the pool of shares that
they are holding for customers. The "loanable" pool comes
from accounts where the holders have authorized that to
happen in their account agreements--but I suspect many
people don't have any idea that clause is in there (nor
would they normally care <grin> ). As well, I've been told,
but have not confirmed, that for most (perhaps all)
brokerages, that would only occur if you a) had an account
with margin privileges and b) actually had borrowed funds on
margin.

In that case, if "your" IBM shares have been loaned out,
when IBM pays a dividend they send "your" dividend to the
person that bought the shares from the individual that
participated in the short sale. The person holding the
short position is then charged for that "missing" dividend
by your brokerage, who then puts that "make up" payment into
your account. You are no more the wiser, but under the law
Congress passed that's not a qualifying dividend--rather,
only the *real* payment from IBM to the person holding the
*real* shares is a qualifying dividend.

Next year, brokerage firms are supposed to break out on
1099s any amounts that end up being allocated to your
account of these "nonqualifying" dividends. My
understanding is that the IRS guidance on reporting allows
the brokerage a lot of leeway in allocating those
nonqualifying dividends, and they can first allocate them to
"tax indifferent" investors. But for now we still don't
know if such allocations will be enough to keep any of these
payments from "spilling out" and disqualifying dividends
that account holders believe are subject to the lower rate.

But that's for next year <grin> .

--
Ed Zollars, CPA
Phoenix, Arizona

Okay, I'm at the point where I know just enough to be dangerous.

I'm sure you're all tired of Rich Dad/Poor Dad questions. I haven't read
the book, but I caught an interview with the author and he pointed out
simply that interest is taxed at your regular rate, but (some) dividends
are taxed much lower. So that got the wheels in head turning.

Instead of putting my savings into a 1-2% MMA, where the earnings are
heavily taxed, I could just buy stocks with stable companies that have a
history of paying good dividends (Bank of America, for example, paid
almost 4% last year). Then I thought, well there are probably smart,
well-informed investors out there who have put together a diversified
mutual fund with exactly this strategy in mind. BUT then I hear that
some mutual funds can be poorly tax managed and have a lot of turnover.

So first of all, am I right that dividends on stocks like BAC would
qualify for long term capital gains? Would I have to hold the stock for
a year first?

Are there any mutual funds that acheive this goal? I perused Vanguard
and found VWINX and VDIGX, but they have a holdings turnover of 28% and
104%(!), which is rather high, right?

So that led me back to where I started, I could just do it myself. Just
cheat! :-) See what those funds have in top holdings and put together
my own "mutual fund" based on that.

I understand that all this would come at the cost of greater risk. The
FDIC isn't going to bail out the RC-10 index! :-)

I guess what I'm asking here is, is this plausible strategy to some day
(it will take me a while) build up a modest income? If it matters, and
I'm sure it does, I'm only in the 25% tax bracket.

I suppose in the mean time (while I'm building capital) I'd just be
better off putting the money into the S&P500?

TIA,
Ryan

Reverse "oohay" to get my real email address.