Comments on: Warning Against Year-End Mutual Fund Purchases

By: jim

jim — Thu, 29 Nov 2007 22:29:33 +0000

See? I didn’t imply it… I was very clear (flat wrong).

By: CK

CK — Thu, 29 Nov 2007 20:01:00 +0000

quote: “… and the price per share didn’t change”

By: jim

jim — Thu, 29 Nov 2007 19:58:38 +0000

Did my article imply that the share price wouldn’t drop?

By: CK

CK — Thu, 29 Nov 2007 19:41:22 +0000

The per share price has to drop after a distribution. If it didn’t you could buy the fund right before the distribution and then sell it right after for a quick profit.

By: jim

jim — Thu, 29 Nov 2007 18:42:19 +0000

CK, Kurt – The value of your shares doesn’t change but the number of shares you have will, it’ll increase, so you’re right on that account. You’re paying taxes on the performance of the year and if you were to sell I imagine you’d be able to write down the loss from the cost basis perspective.

By: CF

CF — Thu, 29 Nov 2007 17:58:59 +0000

Also, this doesn’t matter if you’re contributing to a retirement (or any tax deferred or tax free) vehicle. If it’s a Roth or 529, you never pay taxes (assuming you follow the rules), and if it’s a traditional deductible IRA or other retirement account (tax deductible/deferred), it doesn’t make a difference, correct? Only situation that I see that could be impacted is a traditional NONDEDUCTIBLE IRA (non-deductible being the factor). Is this right or am I missing something?

By: CK

CK — Thu, 29 Nov 2007 16:15:05 +0000

Jim I think Kurt is right.

By: Kurt

Kurt — Thu, 29 Nov 2007 15:42:19 +0000

“You’ve opted to reinvest distributions and so that $5 does back into the fund and the price per share didn’t change.”
I don’t think that’s right. When they declare a distribution, the share price will go down. You will end up owning more shares at a lower price, not the same number of shares at the same price.

This all comes down to a timing difference, really. You are paying taxes now in place of paying them later (if you then sold the shares the day after the distribution, your basis would be higher than the sale price and you would be able to claim a loss).

Am I thinking about this correctly?

By: The Saving Freak

The Saving Freak — Thu, 29 Nov 2007 14:07:00 +0000

Also, with all of your retirement accounts you can contribute up until April 15 for the previous year. This gives you a great opportunity to avoid the no benefit taxes.