Check the Calendar for Dividend Payouts
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In an era when returns generally are low, taxes on short-terms gains can wipe out longer-term gains. That's why anyone with a mutual fund that's not part of a retirement account and that's been held for a year or more should consider selling it before the fund distributes year-end dividends. Those dividends will be taxed as short-term capital gains, which can be as high as 35 percent. Planners are not saying you must do this, just that you should weigh it as an option.
Prior to distribution, the value of the dividend is reflected in the price of a fund's shares. Selling those shares -- as long as you have owned them a year or more -- will result in a long-term capital gain, which is taxed at the lower rate of 15 percent.
Ask the mutual fund when it plans to make its yearly dividend payout, also called a distribution.
You don't lose the dividend by selling before it's distributed; you merely prevent it from being transformed from a low-tax benefit into a high-tax one.
