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I'm just not sure that one would want to go seeking funds that will distribute a good amount of dividends or even distribute capital gains on a regular basis. I don't think you're advocating this at all. Even though a small cap fund will likely have the opportunity for higher returns, I think one still has to look for a fund (if going to be held in a taxable account) that will distribute very little dividends (qualifying or not) and very little capital gains.
- Alec
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Since the ground rules weren't for overall tax minimization but short term tax minimization the issue becomes moot. But given a fund distributing 10% in qualifying dividends and LT capital gains, it turns out better to keep it in a taxable account for periods under 34 years(using a 15% tax rate). Thats taxing it at 5% yearly in the after tax, vs. a 15% tax at the end of the period in a tax deferred fund. But it does switch after 34 years, which I didn't expect. So for the very long term, I have to agree with you Alec, minimize the taxable gains in the after tax fund. However, if you are drawing money to live on from the funds, then the after tax scenerio is better. Of course the tax breaks expire in 2009, and laws can be changed anytime. However I don't think I'll do better than a 5% tax rate anytime in the future myself.
Wayne
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