mutual fund sale/tax question

[roger]

Okay, I want to change a position on some mutual funds. Well, more to the point, I want to buy a fund, but don't have enough liquid assets on hand, but am willing to sell some of another fund to pay for it (ideally I'd just hold all the shares in the existing fund).

So: what are the tax implications of selling the fund to buy another fund? Generally I've been a buy&hold kind of guy, so I don't have a feel for the implications of transferring things around like this.

Yes, I should probably go buy a book, learn the issues, and do the math based on the specific circumstance, but I post in hopes that there may be a clear cut answer.

 

[Ziggurat]

Okay, I want to change a position on some mutual funds. Well, more to the point, I want to buy a fund, but don't have enough liquid assets on hand, but am willing to sell some of another fund to pay for it (ideally I'd just hold all the shares in the existing fund).

So: what are the tax implications of selling the fund to buy another fund? Generally I've been a buy&hold kind of guy, so I don't have a feel for the implications of transferring things around like this.

I'm assuming that this is all in taxable accounts (not in an IRA, 401(k), etc) - if not, then what I'm about to say doesn't apply.

Selling shares in a mutual fund may create capital gains (if the share price went up since you bought it), which are taxable (that is, you need to report them when you file, and they add to your tax liability, but you may not need to do any additional withholding). If so, the capital gains tax you would owe is calculated as a percentage of the change in price since you bought it. What you do with the procedes of that sale, however, is completely irrelevant to whatever tax liability the sale creates.

Buying shares in a mutual fund in a taxable account has no direct tax implications. Future dividends/capital gains distributions will be taxable, but the original purchase is not. And if by chance you bought shares in a fund which didn't pay out dividends, didn't have capital gains distributions, and didn't change share price, then you could sell without ever having to pay taxes on it.

BTW, I'm assuming you've fully funded any Roth/traditional IRA to the maximum you're allowed, right?

 

[roger]

Thanks Zig, that helps. Yes, this is for taxable funds, and is my "play money" besides. non tax/retirement money is taken care of.