The warning label on most mutual funds at this time of year should read – be careful about “buying a tax liability” with late year distributions. Mutual funds periodically distribute to the fund’s shareholders any gains or losses the fund achieves from buying and selling stock. These are called dividends or distributions, and the shareholder must pay taxes on this gain.
Distributions are in the form of dividends, short-term capital gains and long-term capital gains. Both dividends and short-term capital gains are taxed at ordinary income tax rates. Long-term capital gains are currently taxed at 15 percent.
Most experts point to the use of either tax-managed funds or index funds as a way to minimize taxes – tax friendly. Index funds don’t trade much which helps keep capital gain distributions in check. Tax managed funds are run with an eye to after-tax returns. Unlike tax friendly funds, most mutual funds are managed without regard to taxes.
Tax friendly funds play a pivotal role in enhancing your wealth through tax mitigation. For example, if you invest $20,000 in a fund that produced a 10% pre-tax annual return for 20 years; with an after tax return of 7 percent you would have $77,394. However, if the after tax return had been 9 percent, then you would end up with $112,088.
While it is subject to change, it is a pretty good indication that you can buy now without stepping into a “tax cow-pie”.
DFA Tax Distribution Schedule
The following table provides an estimate for the distribution in December of DFA funds.
Record Date: 12/18/2007 – The date on which DFA looks at its record to see which shareholders will receive a distribution.
Ex-Date: 12/19/2007 – On this date the DFA funds trade at the price minus the distributions.
Pay Date: 12/24/2007 – The date DFA will make the distributions to the shareholders account.
|Ticker||Description||Shares||Estimated Income/Share||Total Estimated Income||Estimated Short-Term Gains/Share||Total Estimated Short Term Gain||Estimated Long-Term Gains/Share||Total Estimated Long-Term Gains|
|DFIHX||Dimensional 1 Yr Fxd Inc||1||0.137||$0.14||-||$-||-||$-|
|DFFGX||Dimensional Five Year Govt||1||0.157||$0.16||-||$-||-||$-|
|DFIGX||Intm Govt Fixed Income||1||0.179||$0.18||-||$-||0.001||$0.00|
|DFGFX||2 Yr Glbl Fixed Inc Port||1||0.062||$0.06||-||$-||-||$-|
|DFLCX||US Large Co||1||0.274||$0.27||-||$-||-||$-|
|DFLVX||US L/C Value Portfolio||1||0.128||$0.13||0.001||$0.00||1.103||$1.10|
|DFSVX||US Small Cap Value||1||0.193||$0.19||0.047||$0.05||2.358||$2.36|
|DFSCX||US Micro Cap||1||0.176||$0.18||0.041||$0.04||1.158||$1.16|
|DFIVX||Intl Large Cap Value||1||0.152||$0.15||0.001||$0.00||0.462||$0.46|
|DISVX||Intl Small Cap Value PT||1||0.131||$0.13||0.158||$0.16||1.425||$1.43|
|DFEVX||Emerging Markets Value||1||0.194||$0.19||0.009||$0.01||1.000||$1.00|
|DEMSX||Emerging Markets Small||1||0.077||$0.08||0.109||$0.11||1.076||$1.08|
|Total Estimated Taxable Income||$2.17||$0.40||$9.93|
|Est. Tax Rate||Est. Tax Rate|
|Total Estimated Tax Due||35%||$0.76||$0.14||15%||$1.49|
|Total Estimated Tax Due||$2.39|