How ETFs Keep the Taxman at Bay
Can ETFs lower your tax bill?
ETFs are often touted for their tax efficiency, and for good reason. They can be significantly more tax-efficient than conventional mutual funds, making them good candidates for taxable accounts. But what's the secret behind their tax-efficient ways?
First of all, ETFs are tax-efficient because they are index funds. Most index funds keep trading to a minimum, which means there are fewer taxable gains realized, and the few gains that are realized often qualify for the lower long-term capital gains tax rate.
Sonya Morris does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.