ETF and Capital Gains Distribution

[redduck]

I have a vague awareness that towards the end of the year it's not a good idea to put a bunch of money into a mutual fund that's in a non tax-advantaged account. Does the same hold true for putting a bunch of money into an ETF?

 

[pb4uski]

Per Yahoo finance;

As a result, ETFs can and sometimes do have capital gains distributions. ... However, capital gains are much less frequent for ETF investors than for mutual fund investors, and some ETFs can go years and years without making a capital gains distribution.

Might make sense to check the distribution history for the ETFs that you plan to invest in, but I think generally no.

 

[audreyh1]

I have an ETF that pays dividends quarterly, and you might decide you want to skip that as well. It will also cause a taxable event even if you just bought the ETF a few days before.

 

[LOL!]

It depends on the ETF and mutual fund. For things that pay annually in December, that could be a problem, but many things pay quarterly, so it is not as big a deal.

One can look up the history of distributions for anything that you intend to buy and see if it matters. For most index funds, it doesn't matter if they pay quarterly and not annual distributions. For actively-managed funds, it can be a big problem.

So while you are waiting to buy to avoid a measly 0.5% distribution, the thing you want to buy could go up 2% or more. Of course, it could drop, too.

 

[Cobra9777]

One of the main reasons I own ETFs instead of mutual funds is to avoid year-end CG distributions. I own a variety of widely-held ETFs and I can only remember one time getting a CG distribution... and it was extremely small.

 

[redduck]

Thanks all for the information.

Went to Vanguard's website to look up VUG's (an Large Growth ETF) Dividends and Capital Gains Distribution. Turns out the dividend was paid out this very day. The website listed the Dividend info but no CG Distribution. I called Vanguard and found out that VUG hasn't paid out a CG distribution in the last few years and probably won't this year. So, I guess I'll add to it.

 

[bingybear]

It depends on the ETF and mutual fund. For things that pay annually in December, that could be a problem, but many things pay quarterly, so it is not as big a deal.

One can look up the history of distributions for anything that you intend to buy and see if it matters. For most index funds, it doesn't matter if they pay quarterly and not annual distributions. For actively-managed funds, it can be a big problem.

So while you are waiting to buy to avoid a measly 0.5% distribution, the thing you want to buy could go up 2% or more. Of course, it could drop, too.

OP-
It really pays to know what you own. I have an etf that kicks out dividends a number of times a year and CG from rebalancing the index ( S&P aristocrats) near the end of the year.

ETF's have some features to lower distributions/taxes in some cases that MF may not be able to do. But some of it is just caused by the planned operation of the funds.

MF can have to distribute lots of $ when others in the fund sell out.

First think is to make sure you know what you want to own. Then concern your desired timing/price.

I'm not sure I would hold out for almost 4 months because of some distributions to pass.