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Subject:  Re: Changing Mutual Funds Date:  8/20/1997  10:04 AM
Author:  TMFTaxes Number:  196 of 127613

<<I am a state employee nearing rtirement (3 years)who has an IRA through the state which n't be touch d until I retire. On my own, I also own two mutual funds from the same company, one is an IRA, the other is not. These two funds are not performing that well. II wish to sell them (no penalties involved) and purchase a diversified group of funds. What is the best way to do this that will cause the least financial pain?>>

Well, you have three separate issues here.

First, the "IRA" held by your employer (probably really a 403b plan) is generally limited to investments allowed by your employer (generally various mutual fund famlies). So you need to check with your employer in order to determine what funds will be available for your investment pleasure. Once you find a fund that you like, you can make the "switch" through your employer with no problem and no tax issues.

Second, you have your personal IRA. You can easily switch from your current fund family to a new fund family by simply making a "transfer" of the IRA from the existing fund to the new fund. Just decide which fund you want to invest in, and request IRA rollover forms from them. Once you are set up, the new fund will complete all of the paperwork to transfer your IRA. Again, because this will be a 'trustee to trustee" transfer, there will be no tax issues.

Finally, you have your personal account. You can NOT roll over these funds into another fund family without realizing some tax issues. You must compute your capital gain or loss on the sale of the funds, even if you simply switch between different funds in the same fund family. Your tax impact will obviously depend on your cost basis and the sales price of the fund shares. But whatever it happens to be, you'll be required to report the gain or loss on your 1997 personal income tax return.

For additional information on the sale of mutual funds in your personal account, read IRS Publication 550. You can get a copy of Pub 550 by calling IRS directly (1-800-TAX FORM), or you can view/print it from the IRS website. Point your browser to:

Hope this helps...
TMF Taxes
Roy Lewis

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