"Default User" <defaultuserbr[at]yahoo.com> wrote
On mutual fund capital gains and their taxation --
- quote -

This problem is common enough that fund companies are
generally well prepared to help solve it.

http://www.americanfunds.com/funds/h...er=0&year=1994
for example has all the distributions and reinvestment NAVs
from 1990 to 1994 for your fund. You can change the time
period as needed.

If you do your own taxes, a spreadsheet may come in quite
handy. :-)

- quote -

American Funds should have a record of it. See their web
site for contact info.

Elle wrote:

- quote -

It's not too surprising that I'm mistaken on it, as I'm still fairly
new at all this. I called the brokerage, they said they'll have to
research it to get information on all that due to the dividend
reinvestment.

- quote -

I'm not even entirely sure what that was. I doubt I could find the
original paperwork for it, and my account has changed companies several
times over the years. The original check I gave the broker was for
$6000.

- quote -

I was expecting a bad tax hit, but if it's not too onerous I might just
do that.

Thanks to you and to "Bread", who had some good words as well.




Brian

--
If televison's a babysitter, the Internet is a drunk librarian who
won't shut up.
-- Dorothy Gambrell (http://catandgirl.com)

wyu[at]talisys.com wrote:

- quote -

Oh, I do. When I said 10% in Roth, I meant 10% of the investments
outside of the 401(k). The aggregate investible money is about 80% of
what's in the 401(k).

The asset allocation I showed was what I originally came up with for
that money, with different plan for the 401(k) because not all of those
asset classes are available. However, if I blend the two strategies to
an extent, then you could look at that as an overall asset allocation
too.

I'll have to see what I can come up with for a spreadsheet to help me
figger it out.

- quote -

Thanks for the suggestions.



Brian

--
If televison's a babysitter, the Internet is a drunk librarian who
won't shut up.
-- Dorothy Gambrell (http://catandgirl.com)

On Nov 1, 8:14 am, "Default User" <defaultuse...[at]yahoo.com> wrote:
- quote -

Hmmm ... tough target with only 10% available in your Roth IRA. If you
also had a taxable brokerage account, I could see a possible way to do
this.

401K: Bonds, Domestic Large, Domestic Small, International Large
Roth IRA: REIT
Brokerage: International Small, International RE, Emerging Market,
Commodities

"Default User" <defaultuserbr[at]yahoo.com> writes:

[an old mutual fund bought a long time ago]

- quote -

Here's basically how it works:

Most folks, when they buy a mutual fund, have it set
by default to reinvest distributions. That means that
when the fund pays out dividends, short-term cap gains
and long-term cap gains (usually paid separately), those
payouts are used to buy more shares - and in doing so,
their cost basis increases.

A (I don't know how common) error when dealing with
taxes is that when they sell the fund, they assume
that their taxable capital gain is the difference
between what they paid (out of pocket on that first
purchase) and what they got from the sale. In fact,
each time they reinvested a dividend, they paid
more - just they didn't see the cash between the
distribution and the reinvestment.

Example:
You buy FundX shares for $10,000.
The shares appreciate to being worth $12,000.
The fund pays out distributions (of all three sorts)
which work out to, say, $1500 on your shares and
you have them reinvested.
The shares you own (both original and reinvested
combined) continue to appreciate and now your
original $10,000 investment is worth $14,000.

You sell all of them and pocket $14,000.
Here's the thing - you owe cap gains taxes on $2500,
*not* on $4000. Because in the year when you got
those $1500 of distributions you reinvested, you
paid taxes on those distributions separately.

(note that if you sell within a year of the
distribution and reinvestment, some of those
cap gains may be short-term gains - the reinvested
shares were held for less than a year)

- quote -

It's been throwing off distributions every year, sometimes
quite substantial (ie. in '06, they totalled up to about
8% of share price!). If you've been reinvesting distributions
since you bought that fund, as most folks do, your cost
basis is a *lot* higher than you may think.

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"Default User" <defaultuserbr[at]yahoo.com> wrote
- quote -

It does sound like you're mistaken. The big picture: You get
to increase the cost basis of your mutual fund holding by
the amount of capital gains distributed each year. This is
because you already paid taxes each year on these capital
gains. No double taxation yada allowed.

The "cost basis" is the original cost of each purchase of
shares of your mutual fund. There are a few ways of
computing the capital gain for folks who regularly reinvest
dividends and cap gain distributions. But the good news is
that your cap gain should be quite a bit less than the
current value of the mutual fund less the original purchase
price.

Any load you paid at the initial purchase and subsequent
purchases should result in an increase in the cost basis,
too.

The internet has detailed treatments of this. Try googling
for {"capital gain" "mutual fund" distribution tax}.

I see the box where Morningstar shows this fund (AIVSX, you
noted) as a "blend"; yet Morningstar says on the same web
page that it falls into the "large value" category. I
vaguely remember an explanation for this but am too lazy to
look it up. The 2% yield and a look at AIVSX's top holdings
say to me "Large Value."

Total yearly expenses are 0.77%; turnover about 20%. (Plus
is the load waived on reinvested distributions?
Probably... ) That turnover is very likely unnecessary cap
gains you're paying each year, since other funds or ETFs can
get the same (or more) growth with less turnover. Per
Yahoo's chart tool (not perfect but good enough as part of a
quick check), AIVSX tends to mimic the S&P 500. I would
consider giving up AIVSX and buying an ETF such as VV, VTI,
or SPY. All have much lower expenses and turnover, thus
promising greater growth of principal at lower tax cost each
year.

BreadWithSpam[at]fractious.net wrote:


- quote -

The over split is targeted at 70% stocks to 30% bonds etc. Within the
stock portion, I have planned:

Domestic Equity
Large Cap 15.00%
Large Value 20.00%
Small Cap 10.00%
Small Value 10.00%
REIT 10.00%
Commodities 5.00%
Total 70.00%

International Equity 30.00%
Large Cap 5.00%
Large Value 5.00%
Small Cap 5.00%
Small Value 5.00%
Emerging Markets 5.00%
REIT 5.00%
Total 30.00%



Brian

--
If televison's a babysitter, the Internet is a drunk librarian who
won't shut up.
-- Dorothy Gambrell (http://catandgirl.com)

BreadWithSpam[at]fractious.net wrote:

- quote -

Right. From a complete picture standpoint, it would be best to treat
everything as one big account, from an ease of use point, separately is
better.

- quote -

I think the strategy of doing what I can with available space now makes
sense, and adjust as needed when more Roth becomes available.

- quote -

Yeah, about 10% of the account space outside the 401(k).

- quote -

Actually, the two are roughly equal, the investable portion of the
outside account, not including emergency fund, is about 80% of the
401(k).

- quote -

What would be better to go in there?

- quote -

That's the way I'm leaning. It makes the overall management a bit
trickier, but I can probable gin up a spreadsheet to do that as well.

- quote -

I did at one point. If you can't find it I could post it again.

- quote -

I'll make a separate reply to keep the size of this one down.




Brian

--
If televison's a babysitter, the Internet is a drunk librarian who
won't shut up.
-- Dorothy Gambrell (http://catandgirl.com)

Elle wrote:

- quote -

[old mutual fund]

- quote -

I have paid yearly capital gains and dividend taxes. For instance, my
2005 return (which I have handy) shows $690 in capital gains and $570
in ordinary dividends. So whatever that is at the current rates.

However, if I sold it now I'd owe tax on the difference in value, I
think. If I'm wrong on that, please correct me.

- quote -

The ticker is AIVSX. While Morningstar lists it as "Large Value", their
box shows it as a blend. I put it in my value allocation because I
didn't know what else to do with it.




Brian

--
If televison's a babysitter, the Internet is a drunk librarian who
won't shut up.
-- Dorothy Gambrell (http://catandgirl.com)

On Oct 31, 1:07 pm, "Default User" <defaultuse...[at]yahoo.com> wrote:
- quote -

Yes. I have them in tax-advantaged accounts.

--
Ron

"Default User" <defaultuserbr[at]yahoo.com> writes:
- quote -

For tax purposes in my comments, treat the 401k as a traditional
IRA - inasmuch as it's tax-deferred and distributions are taxable
as regular income. You want income-oriented stuff in there, not
in a taxable account and, in fact, if you have both income-oriented
and cap-gains/growthy stuff, you want the income-oriented stuff
in the tradIRA/401k and the cap-gains/growthy stuff in either
the taxable account or the Roth.

I'd forgotten that the issue you were having was lack of
access to REITs in the 401k. Frankly, I'd just not worry
about it all too much. It's a decent asset class, but it
shouldn't be more than a few percent of your portfolio
anyway, you get some exposure to it in the SP500, and if
your space in the Roth is limited and most of your
investments are in the 401k, I'm not sure I'd bother
"wasting" precious Roth space on REITs.

- quote -

I'd keep the bonds entirely in the 401k and max the Roth out
with equities (especially the higher-octane stuff) and keep
the taxable account limited to a very low turnover (probably
large-cap) index.

I forget, did you post a list of the funds available in
that 401k? I'm assuming the Roth and the taxable accounts
are regular brokerage accounts with access to a vast array
of funds.

What's your target asset allocation?


--
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No HTML in E-Mail! -- http://www.expita.com/nomime.html
Are you posting responses that are easy for others to follow?
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"Default User" <defaultuserbr[at]yahoo.com> wrote
- quote -

Have you taken into account that you may already (that is,
over the years) have paid a sizable chunk of the cap gains
tax on this via the fund's annual distributions (which fund
owners must report on their taxes, etc.)?

Even if you still would owe a large tax, then depending on
the fund's stock turnover rate, it may pay to switch to a
more tax efficient, (and lower expense?) "large value"
mutual fund or ETF.

If you have the fund's ticker symbol, that might be helpful
for checking on these parameters (distributions and turnover
rate) as well as be a good addition of detail for the
archives here.

BreadWithSpam[at]fractious.net wrote:


- quote -

I don't have any traditional IRA accounts, just Roth and 401(k). I
think I'm heading toward a plan that would have the REITs in the Roth
(as much as I can for now), move out most if not all of the Large Cap
Index exposure from the 401(k) to the taxable account, and up the bond
portion in there.

My original plan was to deal with the 401(k) and the "outside" accounts
separately for ease of maintenance, so I hope I don't overy complicate
things.




Brian

--
If televison's a babysitter, the Internet is a drunk librarian who
won't shut up.
-- Dorothy Gambrell (http://catandgirl.com)

Elle wrote:


- quote -

That's something I've considered. One of my problems is that a big
chunk of "Large Value" is in the taxable account currently. Years ago,
a previous attempt at investing lead me to a friend-of-a-friend broker,
who sold me a loaded mutual fund, American Funds ICA.

It's not done badly, and for actively managed it's reasonably low in
expenses. I probably put in around $5500, and it's currently worth
about $35,000. That's a big chunk of unrealized capital gains, so it
makes it hard to do much with large value, unless I bite the cap gains
tax bullet right now.

- quote -

That's probably the way I'll go.

- quote -

Probably. The bonds might be a bigger issue. As I mentioned elsewhere,
my original thought was view the 401(k) and outside accounts
separately, as that's easier than trying to "trade off" allocations
between them.




Brian

--
If televison's a babysitter, the Internet is a drunk librarian who
won't shut up.
-- Dorothy Gambrell (http://catandgirl.com)

BreadWithSpam[at]fractious.net wrote:

- quote -

One of my personality aspects is that I can get very interested in a
subject for a time, then lose a lotinterest. As such, my plan is
certainly NOT to be very active, because I'd likely not keep it up.

I'm trying to get everything on a reasonable autopilot while I'm hot
about. I have a spreadsheet set up that should guide me on quarterly
new investing/rebalancing. I should be able to handle that level once I
kind of cool off.




Brian

--
If televison's a babysitter, the Internet is a drunk librarian who
won't shut up.
-- Dorothy Gambrell (http://catandgirl.com)

"Default User" <defaultuserbr[at]yahoo.com> writes:
- quote -

Those are highly focused single-country emerging markets ETFs
and single-industry ETFs. They maybe be suitable for
active portfolio management, but they are way too specific
and specialized for a basic asset-allocation, minimal-trading
long-term plan. If you want emerging markets in a more
set-it-and-forget it style, something like VWO might be
a better fit.

Anwyay, if you're going to time and/or trade in and out
of those sectors and countries, you definitely want to
do it in a tax-advantaged account, else you'll be having
to deal with cap-gains issues every time you trade and
your tax efficiency goes to hell.

Those specialized ETFs might be suitable for a small
"play" portion of your portfolio, but they are certainly
not "core" holdings.

--
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No HTML in E-Mail! -- http://www.expita.com/nomime.html
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BreadWithSpam[at]fractious.net wrote:

- quote -

This is just my approach for a retired, widowed woman, whose account I
manage. Having mostly stock in the account I call "cash" and mostly
cask/CDs in the account which is an IRA took a bit of explaining, but as
usual, a spreadsheet showed the favorable dividend/cap gain rates made
the non-retirement account the right one for stocks. (The Roth also gets
the stock)
JOE

Ron Peterson wrote:

- quote -

Are you suggesting these for tax-advantaged accounts?



Brian

--
If televison's a babysitter, the Internet is a drunk librarian who
won't shut up.
-- Dorothy Gambrell (http://catandgirl.com)

Ron Peterson <ron[at]shell.core.com> writes:
- quote -

They make a huge difference for asset classes which
throw off income streams - bonds, reits, etc.

- quote -

That may work for a low-turnover highly diversified equity
portfolio with a low dividend yield.

One more consideration to make regarding, in particular,
assets in the Roth vs. assets in a taxable account vs.
a tax-deferred (ie. traditional IRA) account - with the
Roth, the gains *never* get taxed. With the taxable
account, if you can hold on a long time and it is an
investment which throws off little in the way of current
income (ie. dividends or mutual fund distributions),
you get effective tax-deferral *and* a lower cap-gains
rate. But the traditional IRA - as magic as the tax
deferral may be - turns capital gains into regular
income. It may actually make sense to keep the more
tax-efficient things (ie. that low-turnover equity
index mutual fund) in a *taxable* account than in
the 401k or traditional IRA. (assuming cap-gains
continue to get the lower tax rate they have now).

Bonds and REITS should be in a tax-advantaged account
if at all possible, and if you have both a Roth
and a traditional account, put those into the
traditional account and put things you think will grow
more/faster into the Roth.

--
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Are you posting responses that are easy for others to follow?
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"Default User" <defaultuserbr[at]yahoo.com> wrote
On allocating among an IRA, 401(k), and taxable account,
with attention to the fact that the 401(k) does not have a
REIT choice, and the IRA holds only about 10% of the
portfolio.
- quote -

Pros of putting REITs into the Roth IRA:
-- REIT dividends currently are taxed as "unqualified
dividends." One pays a higher income tax rate on unqualified
dividends compared to qualified ones. Thus tax protection
for REITs is desirable.

-- REIT yield tends to be higher than non-REIT yields. The
high dividend reinvestment will cause your IRA's total to
compound quickly. So this is still another argument for tax
protection.

Cons:
-- REITs' dividend increase rates tend to be lower than that
for many non-REIT companies. So holding non-REITs (like
value companies that pay dividends) in a taxable account
could start getting expensive. The compounding effect of (1)
increasing dividends; and (2) re-investing these dividends,
especially as the market seesaws (so you end up often buying
low without lifting a finger) is staggering. It's something
not enough investors consider. I think it was financial
academic (and now WisdomTree ETF consultant/executive yada)
Jeremy Siegel who has put a huge emphasis on this in the
last 15 years or so.

-- How long the "qualified dividends" lower tax rates will
exist remains to be seen. These new tax rates were new as of
IIRC only 2003.

I'd go with holding REITs in the IRA and adjusting as needed
(and as tax law changes?) in the coming years.

Lastly, we may be splitting hairs over the tax advantages at
this point.