The Motley Fool Discussion Boards

Previous Page

Financial Planning / Tax Strategies


Subject:  Re: Avoid Mutual Fund taxes by getting stock ? Date:  9/23/1998  12:59 AM
Author:  TMFTaxes Number:  5445 of 127549

[[I am in the process of becoming Foolish and slowly exiting Mutual Funds in favor of direct investing
into stocks.]]

Congratulations to YOU!!

[[ My question is: Can you postpone capital gains taxes on money that is in these mutual funds by
receiving stock instead of cash ?]]

Nope. Sorry. If you receive shares instead of cash, Uncle Sammy calls these "reinvested dividends", and will tax you on the dividends. In effect, the mutual fund is giving you the cash, and then you are turning right around and buying more shares. You are simply getting the shares directly to bypass the middleman.

Please don't confuse stock dividends received from your mutual fund company (generally always taxable) with stock dividends (or splits) received from normal stock (generally always non-taxable). They are two different animals.

[[ I remember several prospecti saying that the mutual funds had the Option to send you stock
certificates if selling stocks to raise cash would be disruptive to other fund members.]]

Oh...NOW I see. The mutual fund will give you the UNDERLYING shares of stock. This is simply a saftey valve (as I understand it) so that the mutual fund can remove shares without making a sale. In over 25 years of investing, I have never actually seen a mutual fund do this.

[[ I was just wondering if you could ask for 166 shares of Dell @60 instead of $10,000 and just
move your cost basis of say $4000 over to the stock and not have to immediately pay gains on
$6000 ?]]

You can certainly ask. But the option is in the hands of the mutual fund. It isn't your option. So I doubt very seriously that they would comply with your wishes.

But if they did, there would be no taxable transaction until you sold the Dell shares, and your basis in the mutual fund would carry over to the Dell shares.

Sorry I misunderstood your question in the beginning. I hope that you got the right answer in the end.

TMF Taxes

Want to learn more about taxes and investing? Then we have a deal for you!! The Motley Fool Investment Tax Guide is now available through Fool Mart. Be the first one on your block to own this masterpiece. There is still time available to do that tax planning (and tax saving) before the end of the year. So just click on this link ( to read more about this amazing collection of tax information. (Apologies for the shameless plug…but it is a pretty good book). In addition, if you would like to visit the Taxes FAQ (Frequently Asked Questions) area, click on and you'll be right at the home page. Pay special attention to the "archives" section. Check it out. Finally, if you need to get to the IRS web site, click on to go directly there.
Copyright 1996-2018 trademark and the "Fool" logo is a trademark of The Motley Fool, Inc. Contact Us