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What personal tax consequences arise from rebalancing within an index fund?

by jzwinck 6y ago

brtkdotse 6y ago
None, that's the point of a fund.
- lotsofpulp 6y ago
  An index ETF won’t have tax consequences until you sell the ETF. An index mutual fund can cause you to have to pay taxes: https://money.usnews.com/investing/investing-101/articles/etf-vs-index-fund-the-difference-and-which-to-use https://money.usnews.com/investing/investing-101/articles/et... > Since mutual funds trade directly through the fund manager, the manager may need to sell shares of the fund's investments to generate cash needed to cover redemptions. This causes mutual funds to buy and sell within the fund more frequently than ETFs. And every time the trades generate net capital gains within the fund, it creates a taxable event for investors. "Mutual funds are legally required to pay out capital gains to their shareholders each year," Jessee says. Even if you don't sell your shares, you may get a tax bill for gains incurred within the fund. This could happen even in a fund that's losing value.
  - throw0101a 6y ago
    Assuming that it is held in a taxable account. For most people, for most of their portfolio, it will probably held in a tax-sheltered account (e.g., 401(k) retirement in US). If you've maxed out all your sheltered accounts, and are worried about dealing tax events in non-sheltered ones, that's a pretty good position to be in—financially speaking.
    - bluedevil2k 6y ago
      This is a silly statement - there’s plenty of middle class people who hold mutual funds who are hit with capital gains taxes every year from distributions from the fund.
      - throw0101a 6y ago
        These 'taxable people' are in the minority: > Approximately 6 in 10 households in the United States own securities investments—typically through taxable accounts, IRAs or employer-sponsored retirement plans. However, this figure drops to a little over 3 in 10 if only taxable investments are considered. Households that own taxable accounts are more likely to be older, affluent, college educated and white relative to households with only retirement accounts or households without investment accounts. * PDF: https://www.sec.gov/spotlight/fixed-income-advisory-committee/finra-investor-education-foundation-investor-households-fimsa-040918.pdf https://www.sec.gov/spotlight/fixed-income-advisory-committe... The 3-in-10 would also have sheltered accounts: > Importantly, most of these taxable investor households (89 percent) also own a retirement account like a 401(k) or IRA. I stand by my statement: most people don't have to worry about tax events in mutual funds, and those that are in the situation have a 'good problem'.
        bluedevil2k 6y ago
        You don’t know what you’re talking about - taxes are never a ‘good problem’. ‘Good problem’ doesn’t even make any sense and you using it here shows you don’t know the difference between income and wealth.
        throw0101a 6y ago
        Having so much money that you've maxed out and over-flowed tax-sheltered accounts—accounts that many people aren't even able to afford—to the point that you're now worrying about tax efficiency is a not a bad situation to be in IMHO.

What personal tax consequences arise from rebalancing within an index fund?

brtkdotse 6y ago

None, that's the point of a fund.

lotsofpulp 6y ago
An index ETF won’t have tax consequences until you sell the ETF. An index mutual fund can cause you to have to pay taxes: https://money.usnews.com/investing/investing-101/articles/etf-vs-index-fund-the-difference-and-which-to-use https://money.usnews.com/investing/investing-101/articles/et... > Since mutual funds trade directly through the fund manager, the manager may need to sell shares of the fund's investments to generate cash needed to cover redemptions. This causes mutual funds to buy and sell within the fund more frequently than ETFs. And every time the trades generate net capital gains within the fund, it creates a taxable event for investors. "Mutual funds are legally required to pay out capital gains to their shareholders each year," Jessee says. Even if you don't sell your shares, you may get a tax bill for gains incurred within the fund. This could happen even in a fund that's losing value.
- throw0101a 6y ago
  Assuming that it is held in a taxable account. For most people, for most of their portfolio, it will probably held in a tax-sheltered account (e.g., 401(k) retirement in US). If you've maxed out all your sheltered accounts, and are worried about dealing tax events in non-sheltered ones, that's a pretty good position to be in—financially speaking.
  - bluedevil2k 6y ago
    This is a silly statement - there’s plenty of middle class people who hold mutual funds who are hit with capital gains taxes every year from distributions from the fund.
    - throw0101a 6y ago
      These 'taxable people' are in the minority: > Approximately 6 in 10 households in the United States own securities investments—typically through taxable accounts, IRAs or employer-sponsored retirement plans. However, this figure drops to a little over 3 in 10 if only taxable investments are considered. Households that own taxable accounts are more likely to be older, affluent, college educated and white relative to households with only retirement accounts or households without investment accounts. * PDF: https://www.sec.gov/spotlight/fixed-income-advisory-committee/finra-investor-education-foundation-investor-households-fimsa-040918.pdf https://www.sec.gov/spotlight/fixed-income-advisory-committe... The 3-in-10 would also have sheltered accounts: > Importantly, most of these taxable investor households (89 percent) also own a retirement account like a 401(k) or IRA. I stand by my statement: most people don't have to worry about tax events in mutual funds, and those that are in the situation have a 'good problem'.
      - bluedevil2k 6y ago
        You don’t know what you’re talking about - taxes are never a ‘good problem’. ‘Good problem’ doesn’t even make any sense and you using it here shows you don’t know the difference between income and wealth.
        throw0101a 6y ago
        Having so much money that you've maxed out and over-flowed tax-sheltered accounts—accounts that many people aren't even able to afford—to the point that you're now worrying about tax efficiency is a not a bad situation to be in IMHO.