Author Topic: End of year capital gains distributions  (Read 897 times)

ekywildcat

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End of year capital gains distributions
« on: November 15, 2019, 04:18:18 PM »
I've done research and understand (I think) why mine and my wife's Roth IRA's and her 403b drop in value in December due to capital gains distributions.  Then, in a matter of days, they're back practically to where they were.  Is there a way to avoid this?  I'm also wanting to buy some different funds in the IRA's.  I've read that's not a good idea this close to end of year, because you will still be hit with the end of year cap gains distributions for the new fund, so basically you start out in the hole on that fund.

So, is the information I've read correct, or should I go ahead with the purchase or wait for 2020?  TIA

Systems101

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Re: End of year capital gains distributions
« Reply #1 on: November 15, 2019, 06:47:44 PM »
I've done research and understand (I think) why mine and my wife's Roth IRA's and her 403b drop in value in December due to capital gains distributions.  Then, in a matter of days, they're back practically to where they were.  Is there a way to avoid this? 

No.  It's very common in stocks, sometimes in mutual funds.  The first date (when the value drops) is known as the ex-dividend date.  Even if you sold after that date, you would still receive the dividend.

I'm also wanting to buy some different funds in the IRA's.  I've read that's not a good idea this close to end of year, because you will still be hit with the end of year cap gains distributions for the new fund, so basically you start out in the hole on that fund.

Don't worry about the semantics of "starting out in the hole".  That's funny math, because taking a distribution of $1000 before swapping funds and taking a distribution of $1000 after is equivalent.  Because neither are taxable (it's an IRA), it's irrelevant to the overall dollar value you hold.

Edited to remove items not relevant to IRA investment
« Last Edit: November 15, 2019, 06:54:40 PM by Systems101 »

MustacheAndaHalf

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Re: End of year capital gains distributions
« Reply #2 on: November 17, 2019, 12:22:05 AM »
Normally the impact of a dividend is the tax you pay.  So some people planning to buy shortly before the dividend should wait until the record date (when the dividend recipients are determined), then buy afterwards.

But the price drop and increase aren't just artifacts of the dividend.  If the market moves enough, you might not even notice it in the noise.

In an IRA, there's nothing to do.  If you get the dividend, you owe no tax on it.

ekywildcat

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Re: End of year capital gains distributions
« Reply #3 on: November 18, 2019, 10:30:21 AM »
Thanks for the replies Systems101 and MustacheAndaHalf.  No matter how much research you do, hearing it from real people makes more sense.  Thanks again.