Investing and Taxes

[savannah11]

My goal for the new year is to stop being such a cash hoarder. I've been on the vanguard website using their tools to pick funds to invest in based on my risk preference and investment schedule. What I can't seem to figure out is the tax implications of investing.

If I put my money in the Vanguard funds and leave them, will I have to pay taxes on the gains? Or do I just pay taxes if they sell within the fund? What if I rebalance among funds?

[Deleted]

You only pay taxes when you realize gains. So while your portfolio may go up in value you don't pay taxes until you actually sell and have a gain.

[Deleted]

You may have some taxes owed if you have mutual funds even if you haven't realized the gain. You can look for "Tax Advantage" funds.

[savannah11]

Jan 2, 2013 10:31:55 GMT -5 @septimus said:

You only pay taxes when you realize gains. So while your portfolio may go up in value you don't pay taxes until you actually sell and have a gain.

Thank you. That's what I was thinking but I wanted to be sure. I did see tax-exempt and tax-efficient options so that got me wondering about the tax implications.

[gt7301b]

Just to clarify, are these assets in an IRA or another type of retirement vehicle?

[savannah11]

Jan 2, 2013 10:40:34 GMT -5 gt7301b said:

Just to clarify, are these assets in an IRA or another type of retirement vehicle?

No.

[njohnson1972]

Jan 2, 2013 10:31:55 GMT -5 @septimus said:

You only pay taxes when you realize gains. So while your portfolio may go up in value you don't pay taxes until you actually sell and have a gain.

This is not necessarily true. Mutual funds distribute capital gains to their shareholders for gains created within the fund from trading. Most stock funds distribute those gains to fund holders at the end of the year. You would owe taxes on those capital gain distributions.

[savannah11]

Jan 2, 2013 10:53:17 GMT -5 njohnson1972 said:

Jan 2, 2013 10:31:55 GMT -5 @septimus said:

You only pay taxes when you realize gains. So while your portfolio may go up in value you don't pay taxes until you actually sell and have a gain.

This is not necessarily true. Mutual funds distribute capital gains to their shareholders for gains created within the fund from trading. Most stock funds distribute those gains to fund holders at the end of the year. You would owe taxes on those capital gain distributions.

One of the stock funds recommended shows a quarterly dividend distribution. If I reinvest that, do I then not have to pay taxes?

[njohnson1972]

Jan 2, 2013 11:15:55 GMT -5 @savannah11 said:

Jan 2, 2013 10:53:17 GMT -5 njohnson1972 said:

This is not necessarily true. Mutual funds distribute capital gains to their shareholders for gains created within the fund from trading. Most stock funds distribute those gains to fund holders at the end of the year. You would owe taxes on those capital gain distributions.

One of the stock funds recommended shows a quarterly dividend distribution. If I reinvest that, do I then not have to pay taxes?

The Quarterly Dividend distribution is taxable to you as income.

The other part - Capital Gains - which is taxed at a Capital Gain rate (lower that income tax rates).

Not all funds have Capital Gain distributed. You will usually see it more in Stock funds that had a really good year. Here is an example of American Funds that had Capital Gains distributed to holders. If you had 1,000 shares of The New Economy Fund on 12/27/2012, you would have received a Capital Gain Distribution of $875, which you would file as Capital Gains and pay 20% on.

www.americanfunds.com/resources/tax/capital-gains/index.html