Tis The Season For Distributions - Adviser Investments

Tis The Season For Distributions

November 23, 2012

Don’t Let Distributions Tax Your Holiday Season

To most, Thanksgiving marks the start of the holiday season, but to investors, it also signals the beginning of distribution season.

In December, many funds will pay out accumulated income, as they do every year. This income, along with any capital gains distributions you receive from funds held outside of a tax-advantaged retirement account, is taxable in the year it is received–so any income or capital gains you get as a holiday bonus this year will have to be included in your 2012 tax return come April.

If you are planning to make any additional purchases before year-end, it’s important to know when your funds are planning to make their year-end distributions. Why? Because if you buy shares of a fund prior to its “ex-dividend” date (the date on which the fund’s price is reduced by the amount of the expected dividend or capital gain), you will be on the hook to pay taxes on distributions on those shares even though you didn’t own the shares when that income was “earned.” Buying shares just before the ex-dividend date is often referred to as “buying the dividend,” and it’s something we avoid whenever possible for our clients.

To help you avoid this mistake with Fidelity or Vanguard funds, we’ve put together an alphabetical list of funds that are currently scheduled to pay out income and/or capital gains next month. Fidelity funds that do not appear on the list are not expected to make distributions this year, however, this information is subject to change. (Vanguard had not released its full distribution schedule before we went to print–the list you’ll find below only includes funds expected to pay capital gains.) Note that any shares you own on the fund’s “record date” will be eligible for distributions. So, again, to avoid additional distributions just before the end of the tax-year, don’t buy a fund–or additional shares in a fund–until after the record date.

Fidelity1

Fidelity2

Fidelity3

As mentioned above, the information that Vanguard has provided to date applies only to estimated capital gains distributions–the dates for each fund listed are for all share classes (Investor, Admiral, Signal and Institutional), with the exception of ETF shares, which you can find in a separate table below.

Vanguard1

Vanguard2

VanguardETF1

VanguardETF2

 

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