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Tax strategies to maximize retirement investments & income - 2 articles
"This [realizing capital gains] can happen if your fund actively trades securities in an attempt to beat their benchmark returns"
There's active and there's active. In the sense that it's being used here (realizing and distributing long term gains by a fund), anything other than pure buy and hold (see LEXCX)) is going to do this. So it's more a question of how much, not whether. IMHO, what's more destructive is a higher frequency (short term) turnover, that creates short term gains that appear as ordinary, non-qualified income. The difference between box 1a and box 1b, which the article doesn't mention.
If the turnover is rapid enough, it will even convert qualified dividends into non-qualified. To me, that frenetic trading is the real problem. Capital gains rates are IMHO, as low as they're ever going to be, so it's not necessarily a bad thing to recognize them now instead of a couple years down the road. But converting long term gains into short term gains, converting qualified dividends into nonqualified dividends - that's just giving money away.
Second article:
"To be eligible for long-term capital gain treatment, you'll need to hold your investments for more than one year. (Note that equity investments in tax-advantaged accounts, such as IRAs and 401(k) accounts, aren't eligible for this special tax treatment. Any amount removed from a traditional IRA or 401(k) is subject to ordinary income taxes upon withdrawal.)"
Company stock is eligible for this "special" tax treatment. See NUA.
"Bonds and cash investments are also taxed at ordinary income tax rates in after-tax accounts (unless they're municipal bonds)."
Comments
"This [realizing capital gains] can happen if your fund actively trades securities in an attempt to beat their benchmark returns"
There's active and there's active. In the sense that it's being used here (realizing and distributing long term gains by a fund), anything other than pure buy and hold (see LEXCX)) is going to do this. So it's more a question of how much, not whether. IMHO, what's more destructive is a higher frequency (short term) turnover, that creates short term gains that appear as ordinary, non-qualified income. The difference between box 1a and box 1b, which the article doesn't mention.
If the turnover is rapid enough, it will even convert qualified dividends into non-qualified. To me, that frenetic trading is the real problem. Capital gains rates are IMHO, as low as they're ever going to be, so it's not necessarily a bad thing to recognize them now instead of a couple years down the road. But converting long term gains into short term gains, converting qualified dividends into nonqualified dividends - that's just giving money away.
Second article:
"To be eligible for long-term capital gain treatment, you'll need to hold your investments for more than one year. (Note that equity investments in tax-advantaged accounts, such as IRAs and 401(k) accounts, aren't eligible for this special tax treatment. Any amount removed from a traditional IRA or 401(k) is subject to ordinary income taxes upon withdrawal.)"
Company stock is eligible for this "special" tax treatment. See NUA.
"Bonds and cash investments are also taxed at ordinary income tax rates in after-tax accounts (unless they're municipal bonds)."
Some bonds, like BABs are taxable muni bonds. There are also private activity bonds which while not subject to ordinary tax, are nevertheless taxable under AMT.