When is it the best time to sell a mutual fund that you are intending to sell--before or after they pay the annual dividend? I've often heard you should sell before (for tax reasons) but I never understood why. Why give up the dividend just so you wouldn't have to pay taxes on it?
sell--before or after they pay the annual dividend?
The best time to sell is the day you decide you don't want to own it any longer. What you are calling the dividend is reflected in the current share price. When they pay the distribution the share price will drop accordingly.
You're probably thinking about the advice regarding buying shares just before they pay out. That creates a tax liability without increasing the actual value of your holding.
It sounds like you could use some basic education about how mutual funds work. You might start with IRS Publication 564.
Phil Marti VITA/TCE Volunteer Clarksburg, MD
To minimize taxes, you should sell before they pay out distributions. The dividends that the mutual fund received from the companies it owns are already reflected in the share price, so you're not "giving up" on them. The difference is in the tax rate that you'll pay. If you sell before the fund distributes, all your profits will be capital gains, taxed at a lower rate (I'm assuming you're selling shares held longer than 1 year). If the fund distributes, some of that distribution will be dividends and short-term gains, which are taxed at your regular tax rate.
Thank you, Barry!!! I now remember being told this before; I had forgotten it but I knew there was a reason to sell before distribution of div and gains. Thanks again... Sandy
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