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ETF Specialist

How ETFs Keep the Taxman at Bay

Can ETFs lower your tax bill?

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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.