mutual funds

Question

Are mutual funds subject to federal income taxation?  Are distributions from mutual funds taxable?

 

What is a loading charge?  Do all investment companies charge this fee?

Answer 1

Are mutual funds subject to federal income taxation?  Tax-wise, investing in a mutual fund is almost like investing in a stock - the investment into the stock is not taxable, nor is an investment into a mutual fund.  The mutual fund, in and of itself, is not earnings.

 

Are distributions from mutual funds taxable?  Mutual funds can have both dividends and capital gains, both of which can be subject to tax.  (There can of course also be capital losses.)  But note these can be taxed at different rates.  I don't think this is the medium for going into details about all the tax consequences, and if you are seriously considering investing then I believe you should do some research on this topic.  Taxes are never simple.

 

A load is a percent fee that some funds charge.  There's a front-end load, which is paid up front, and can be 5% or higher.  A back-end load is only charged if you sell the fund before a specified time period (such as a year).  That isn't a problem if you know you will keep it longer than that.  There are also many, many no-load funds. 

 

(Please note, however, that there can still be transactions charges or management fees that are unrelated to loads.)

 

I do not believe in the blanket statement that you should arbitrarily just start doing a Roth IRA without knowing your personal circumstances.  It is true that the earlier you start saving, the better, but the details of what you choose to do depend on many factors of your personal case. 

I would suggest reading some basics:

http://www.rothira.com/traditional-ira-vs-roth-ira

 

Answer 2

Take a look at the IRS site. Here's a starter article: http://www.irs.gov/Help-&-Resources/Tools-&-FAQs/FAQs-for-Individuals/Frequently-Asked-Tax-Questions-&-Answers/Capital-Gains,-Losses,-Sale-of-Home/Mutual-Funds-%28Costs,-Distributions,-etc.%29/Mutual-Funds-%28Costs,-Distributions,-etc.%29-4

 

Are mutual funds subject to federal income taxation? YES

 

Are distributions from mutual funds taxable? YES

What is a loading charge? Do all investment companies charge this fee?

See: http://www.wikinvest.com/wiki/Load_fee

 

Amy, have you studied compound interest yet? Time is your greatest asset! Invest regularly and early in life.

 

I personally recommend the LOWEST LOADED funds, the Indexed Funds; esp., a Standard & Poors 500 Index fund (I like the original, the Vanguard 500).

 

Open a Roth IRA (Investment Retirement Account) as soon as you can and make regular contributions; try to invest the maximum you can each year by IRS rules. Make all your investments in the Roth until you max it out each year.

 

The advantage of a Roth IRA is that the gains you make in it are NOT TAXABLE.