It’s Time to Check Mutual Fund Capital Gains Distributions

If you own mutual funds outside of your retirement accounts, be sure to check on upcoming capital gains distributions. You may still have time to avoid paying taxes on those gains.

Column distributed by Hearst Connecticut Media Group.

Links to resources referenced:

• Morningstar – “What You Need to Know About Capital Gains Distributions”
  • https://www.morningstar.com/funds/what-you-need-know-about-capital-gains-distributions
  • Related column excerpt:
    • “When a mutual fund sells securities that have appreciated in value and the fund doesn’t have any offsetting capital losses, it must distribute those gains, as well as any dividends or income payouts, to shareholders,” quoting Morningstar, a U.S. financial services firm. “Shareholders, in turn, are required to pay taxes on the gains (assuming they don’t have any offsetting capital losses in their own portfolios).”
    • “While this may seem unlikely, ‘you may have to pay taxes on these [capital gains distributions] even if you didn’t sell a single share, and even if you reinvested the income or capital gain right back into the fund and never received a check,’ quoting Morningstar.”
• Morningstar – “Ready for a Big Capital Gains Tax Bill?”
  • https://www.morningstar.com/funds/ready-big-capital-gains-tax-bill
  • Related column excerpts:
    • “According to Morningstar’s ‘Ready for a Big Capital Gains Tax Bill?’ leading the list of funds with high distributions ‘is Morgan Stanley Institutional Dynamic Value MAAQX, which is slated to distribute more than 50% in capital gains. Five other strategies are distributing more than 40%.’
• Morgan Stanley – Estimated 2024 Year-End Distributions
  • https://www.morganstanley.com/im/publication/forms/tax/2024_estimated_year_end_distributions.pdf?1730306277927
  • Related column excerpt:
    • “The capital gains distribution for MAAQX is scheduled to be paid on Dec. 11, 2024, for shareholders of record as of Dec. 10, 2024, according to Morgan Stanley’s ‘Estimated 2024 Year-End Distributions,’ which you can find online.
• J.P. Morgan Asset Management – 2024 Dividend and Capital Gains Schedule
  • https://am.jpmorgan.com/us/en/asset-management/adv/resources/tax-planning/capital-gain-distributions/
  • Related column excerpts:
    • “The status of any capital gains distributed to shareholders (i.e. whether or not they are considered short-term or long-term) depends on how long the fund owned the securities that produced the gain -- not how long the shareholder owned shares in the fund,’ quoting J.P. Morgan Asset Management’s 2024 Dividend and Capital Gain Schedule.
• Publication 590-B: Distributions from Individual Retirement Arrangements (IRAs)
  • https://investor.vanguard.com/content/dam/retail/publicsite/en/documents/preliminary-capital-gains-distribution-estimates-112024.pdf
  • Related column excerpts:
    • “You can look up each of your funds estimated 2024 year-end distributions by searching online for the funds you own. Another example is Vanguard’s.”
    • “For example, Vanguard’s Balanced Index Investor fund expects to distribute 2.81% on Dec. 31, 2024, to shareholders of record as of Dec. 17, 2024.”
    • “The Vanguard list was created on Oct. 31, 2024, and does not include those funds (such as Vanguard’s S&P 500 Index Fund) that are not expected to distribute capital gains in December.”
    • “The estimate will provide a list of funds that expect to pay capital gains distributions ‘to shareholders of record.’”
• IRS Tax Topic no. 409, Capital gains and losses
  • https://www.irs.gov/taxtopics/tc409
  • Related column excerpts:
    • “As for taxes, ‘Net capital gains are taxed at different rates depending on overall taxable income, although some or all net capital gain may be taxed at 0%,’ quoting the IRS.”
• IRS Rev. Proc. 2023-34
  • https://www.irs.gov/irb/2023-48_IRB#REV-PROC-2023-34
  • Related column excerpts:
    • “For 2024, the taxable income brackets for married filing jointly are (0%) $0 to $94,050; (15%) $94,051 to $583,750; and (20%) $583,751 or more, whereas for single filers they are (0%) $0 to $47,025; (15%) $47,026 to $518,900; and (20%) $518,901 or more.”