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Author: Lokicious Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 124778  
Subject: Re: Grandparents, Custodial Accounts and Taxes Date: 3/6/2001 10:42 AM
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"As I understand it, the mutual funds always produce reportable income through the distribution of capital gains; growth stocks often don't."

I think you'll find if you look at tax-managed or low turnover growth funds, there is very little tax. Taxable distributions for these funds are usually less than 2% or even 1% annually of the fund's worth. Vanguard has a good recent discussion of tax efficient fund management.

If you buy non-dividend yielding stocks, you won't pay capital gains taxes until you sell, but you will pay when you sell. You have to weigh other factors in deciding between a fund and individual stocks, including risk, potential returns, and time you want to spend, but you will find little tax advantage, if any, with individual stocks compared to a low tax fund.
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