In the mutual fund world, 2016 is shaping up to be a more active year than usual for capital gains distributions. And if you own mutual funds outside of tax-deferred retirement accounts, such as 401(k) plans and individual retirement accounts, you could end up owing taxes on those gains.
"A lot of mutual fund managers are in the black this year," said Ian Weinberg, a CFP and CEO of Family Wealth & Pension Management. "So they might have a large [capital gains] distribution that they're going to make, and they aren't always thinking about the income taxes of the investors."
Basically, when a fund sells a holding at a profit, the fund is legally required to distribute that gain among shareholders, who in turn must pay taxes on it even though they personally sold nothing.
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Most mutual funds' 2016 distributions range from modest to higher than usual, but a handful are socking shareholders with gains of 20 percent, 30 percent or more of the fund's share price, according to various published reports. So if you own funds in a taxable account, make sure to check on the capital gains factor.