Foreign Stock Mutual Fund Distributions

[chinaco]

If you hold Foreign Stock Mutual funds, take a look at the upcoming distribution. Depending on when you bought in... you may get an unexpected tax bite along with the losses this year.

Investor daily: Beware for losing funds with big tax bills - Nov. 12, 2008

According to the article, you should be able to call the fund and get an expected distribution.

 

[freebird5825]

excellent advice.
simple question: if an international fund is also an index fund, vs actively managed, the cap gains dist will be less, correct? unless of course it was swamped with massive redemptions.

 

[chinaco]

excellent advice.
simple question: if an international fund is also an index fund, vs actively managed, the cap gains dist will be less, correct? unless of course it was swamped with massive redemptions.

Good question.... I am not sure of the answer.

The advice was to call your MF company... they can tell you the expected distribution. It probably depends on when you bought in and several other variables.

It could be that the tax hit is marginal that it is not worth doing... OR maybe you have other losses to offset it.

 

[kaneohe]

Yes, good advice. Earlier this yr, I sold a global fund and switched to an international one for tax loss reasons. The fund co. is estimating 25% LTCG for the new fund (not quite as large as the 50% quoted in the linked article but still impressive) so I am planning to switch back (after wash sale period ends) for a more normal 4% distribution in the old fund.

 

[freebird5825]

Good question.... I am not sure of the answer.

The advice was to call your MF company... they can tell you the expected distribution. It probably depends on when you bought in and several other variables.

It could be that the tax hit is marginal that it is not worth doing... OR maybe you have other losses to offset it.

TY.
JAOSX was a fund that had a good run, but the exp ratio was like a tiny wood splinter. it was in my "ditch it" sights for a year now.
i just did a TLH action - exchanged JAOSX (actively managed) to VEURX (indexed), both international funds. Loss in value for JAOSX for 2008 was just under the max loss i could claim, using my cost basis from 2004.
i did the exchange this week, before the 2008 year end distributions. i'm learning...
i was curious about the active vs indexed question for my 2009 tax projection exercise i will be going thru as soon as i get my TurboTax SW. my 2008 and 2009 income is now completely predictable. beware my future tax planning question threads

 

[LOL!]

...Loss in value for JAOSX for 2008 was just under the max loss i could claim, using my cost basis from 2004.

Wow, I feel sorry for you since you can claim 100% of losses since there is no limit to losses that you can claim. Your JAOSX must've gone to ZERO!

 

[chinaco]

I am checking on my international funds' expected distributions. VG said they will know on 11/26.

 

[dex]

10000 Current Total Value
18 Current Share Price
555.5556 Number of Shares
8 Capital Gains/Share
4444.44 $ Capital Gains
0.15 Tax rate

666.67 Taxes

3777.78 Net Capital Gains Distribution

246.9136 - re invest distribution - number of shares purchased as a result of capital gains distribution

14444.44 $ Value of fund after capital gains

One way of looking at this is that you paid $667 in taxes to get $4,444 in additional shares in the fund. Looks like a good buy to me.

I'm not one for making investment decisions based upon taxes. Above is the math based upon the info in the article.

What isn't in the article is the other side of the equation - the net effect of purchasing a similar index fund. Does anyone have the math to show that selling and buying a fund based upon taxes is a good idea?

 

[FIREd]

Preliminary CG estimates for Vanguard funds:

https://personal.vanguard.com/us/Va...iews/news_ALL_prelimcapgains_11172008_ALL.jsp

 

[chinaco]

...
I'm not one for making investment decisions based upon taxes. Above is the math based upon the info in the article.

What isn't in the article is the other side of the equation - the net effect of purchasing a similar index fund. Does anyone have the math to show that selling and buying a fund based upon taxes is a good idea?

I think it depends on your situation. My understanding of the article was akin to buying the distribution. For example: If you buy a mutual fund just before the distribution, you will not likely have made any real gain in value... but you could be distributed cap gains and have to pay taxes on the distribution.

My understanding was some people who bought into a foreign mutual fund over the last couple of years may get hit with a cap gain because other investors are cashing out and forcing the mutual fund to liquidate stocks. Some of those stocks sold had a low basis because they were purchased perhaps 5 or 6 years back (before the the newer investors bought in). In other words, the fund is at a loss for the new investor... but the sell of stocks in the fund to payoff exiting investors triggered a cap gain in the fund... and consequently a distribution.


If you made a sizable purchase in the last couple of years... it is probably worth checking it out.

 

[kaneohe]

Dex...I think Chinaco is right. Using your example:

Initial NAV $18/sh. After $8/sh CG dist, NAV is $10/sh.
CG dist $4444.44 in the form of 444.444sh at $10/sh

Total shares =555.556 initial + 444.444CG dist = 1000 sh
Value = 1000sh x $10/sh = $10,000 which is exactly the same as before the dist.

So, in effect, no increase in value but you have to pay the CG tax you calculated
(bought the distribution as Chinaco said)

 

[dex]

Dex...I think Chinaco is right. Using your example:

Initial NAV $18/sh. After $8/sh CG dist, NAV is $10/sh.
CG dist $4444.44 in the form of 444.444sh at $10/sh

Total shares =555.556 initial + 444.444CG dist = 1000 sh
Value = 1000sh x $10/sh = $10,000 which is exactly the same as before the dist.

So, in effect, no increase in value but you have to pay the CG tax you calculated
(bought the distribution as Chinaco said)

Here is the historical info on the fund discussed
LETRX: Historical Prices for ING RUSSIA FUND CLASS A - Yahoo! Finance

In 2007; it does appear that it went up to the CG distribution then down - and stayed down.

It comparison is Holding first fund, reinvesting CG & paying taxes Vs
Selling first fund and buying an index fund with similar investments as the first.

Conceptually, the sell and buy sounds good - I just would like to see the numbers.

I don't plan on doing any of it. With my current investments, loss carry forwards, tax rate and expected 2009 tax rebate; I don't see much use for it.

 

[freebird5825]

Wow, I feel sorry for you since you can claim 100% of losses since there is no limit to losses that you can claim. Your JAOSX must've gone to ZERO!

i think you're bustin em on me, but i'll throw the numbers out there...
JAOSX account value in 2004 when i inherited account, $4500, which is my cost basis.
JAOSX account value in early Nov 2008, $1600
my calculator sez i have a loss of $2900 for 2008, just under the $3000 annual maximum allowed by IRS.
did i do my TLH correctly?
recall i wanted to get rid of this high exp ratio turkey anyway.

 

[chinaco]

I am going to sell my taxable losers for the cap loss. I will mover the money back into the market after the wash with the same or similar investments.

I could lose a little of the up side between now and the end of the year... but the volatility is probably going to continue for a while so I doubt I will miss out on much.

At least I can offset a small amount of income tax each years and some future cap gains.

 

[LOL!]

...my calculator sez i have a loss of $2900 for 2008, just under the $3000 annual maximum allowed by IRS.
did i do my TLH correctly?

Any net losses more than $3000 get carried over to next year, so there is no maximum allowed by the IRS. Sure, one can only put no less than -3000 on the first page of your Form 1040 each year, but that doesn't mean there is a limit to losses that you can deduct. The carryovers are important!

 

[kaneohe]

Any net losses more than $3000 get carried over to next year, so there is no maximum allowed by the IRS. Sure, one can only put no less than -3000 on the first page of your Form 1040 each year, but that doesn't mean there is a limit to losses that you can deduct. The carryovers are important!

Here's an interesting thread that TLH may not be for everyone and depends on each person's individual circumstances:
Bogleheads :: View topic - TLH - It's Not for Everybody

 

[freebird5825]

Any net losses more than $3000 get carried over to next year, so there is no maximum allowed by the IRS. Sure, one can only put no less than -3000 on the first page of your Form 1040 each year, but that doesn't mean there is a limit to losses that you can deduct. The carryovers are important!

understood, and thank you! i went to the IRS site and boned up on capital loss limits per annum.
this is my first year without any earned income, so i will now be able to do real tax planning and TLH if I need to. my non-investment income is now completely predictable, unlike in 2007 when i FIREd. a steady state has been reached.