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Investing Specialists

Don't Put Up With Big Capital Gains Payouts

Taxable investors: There is a better way.

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I wrote about mutual funds' impending capital gains payouts last week. Some of these distributions are sizable, amounting to more than 10% of the funds' net asset values. Despite the impending tax pain, many investors seemed to greet the news with a shrug. Big capital gains distributions? Just a part of making money.

But investors who take big capital gains distributions lying down are leaving money on the table. With proper asset location, and more importantly, careful investment selection for your taxable accounts, you can reduce unwanted capital gains distributions to a trickle. Yes, you'll still owe capital gains taxes when you finally sell those appreciated securities from your taxable account. But the crucial difference is that you'll exert control over when you'll owe those taxes, and the taxes you pay will be tied directly to your own profits.

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Christine Benz does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.