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Author: yehudazk One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121598  
Subject: Distributions Help Date: 12/8/2005 2:34 PM
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Dear friends,

I bought American Century Target Maturities Fund(BTTTX, BTFTX) in August this year; they have since been trailing by 4%. On December 16, there will be distributions in the amount of $4.53 (capital gains & dividends) per share (BTFTX); the current NAV is $75.03. Does it make sense to sell before the 16th and reinvest after 31 days to avoid paying taxes on a fund I basically only have a loss?

Thanks
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Author: TMFPMarti Big funky green star, 20000 posts Home Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 81828 of 121598
Subject: Re: Distributions Help Date: 12/9/2005 2:11 AM
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I bought American Century Target Maturities Fund(BTTTX, BTFTX) in August this year; they have since been trailing by 4%. On December 16, there will be distributions in the amount of $4.53 (capital gains & dividends) per share (BTFTX); the current NAV is $75.03. Does it make sense to sell before the 16th and reinvest after 31 days to avoid paying taxes on a fund I basically only have a loss?

Since Miss Cleo won't answer my call, my crystal ball is at the cleaners, and my Magic 8 Ball just fell on the floor, I'm gonna have to go with "maybe."

Here's what you need to know that isn't in your post, but should be available to you (no need to post it here).

In all calculations, don't forget to include load.

First, work in total $$, not in per share figures. The difference between the effect of 1 share vs 1000 is obvious.

Second, you need to know how much of the $4.53 is capital gain and how much is dividend.

Now you know what 2005 taxable income you'll have from the distribution. Compute the tax (don't forget the Governor) and you know how much holding will cost you in 2005 income tax.

Now compute your loss if you sell and the effect of that on your 2005 tax. Now you know how much selling will "save" you.

Now you try the Psychic Hot Line to find out how much it will cost you to re-establish your position after the wash sale waiting period. You are now equipped to make your rational decision.

Me, I'd flip a coin if the idea to consdier this even popped into my mind. I'd just ask my standard "does this investment meet my current investment criteria?" and be done with it. I'll spend hours making sure I don't send an extra penny in estimated tax, but after riding a stock all the way down from a pretty good short-term gain to a carryover long-term loss, I've pretty much sworn off on tax timing.

Phil

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Author: yehudazk One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 81870 of 121598
Subject: Re: Distributions Help Date: 12/11/2005 2:08 PM
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In all calculations, don't forget to include load.

This is a no-load fund.

Second, you need to know how much of the $4.53 is capital gain and how much is dividend

Why does it make a difference? both are included in the current NAV pricing and both are being taxed after distribution.

Here is the info: $3.2054 - dividends; $1.3262 - long term capital gains "per share".

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Author: TMFPMarti Big funky green star, 20000 posts Home Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 81881 of 121598
Subject: Re: Distributions Help Date: 12/12/2005 2:02 AM
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Second, you need to know how much of the $4.53 is capital gain and how much is dividend

Why does it make a difference? both are included in the current NAV pricing and both are being taxed after distribution.


They're taxed at different rates, so you need the breakdown to figure the tax effect of holding.

Phil

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Author: Crosenfield Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 81886 of 121598
Subject: Re: Distributions Help Date: 12/12/2005 11:49 AM
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I think that is a fund that has zero-coupon bonds. You get taxed on interest you don't actually receive. When the bonds mature you get 100c on the dollar; it is worth less now and because of the interest rate hikes in the past year you have a loss.
I'd take the loss at short-term rates. Since you bought in August this year, it is all short term. Sell, avoid the distribution and it is all short-term. If you take the distribution it is long or short term according to how long the FUND has held the bonds; if you sell, it is long or short term according to how long YOU have held the shares. There is never an advantage in allowing a loss to become long term. At maturity, the shares will be worth 100 cents on the dollar. The loss this year has to do with what the Fed has been doing with interest rates. To buy again before the following Jan 31 Fed meeting is reasonable. I'd be looking to buy on a day when the 10-year treasury is paying over 4.5%, but after 31 days of selling.
Best wishes, Chris

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