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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 35932  
Subject: Re: reinvest bond fund dividends or not?? Date: 4/27/2005 11:22 AM
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"It is not as much of a pain to sell a fund in which you have reinvested dividends and capital gains as the other repliers say. Most, if not all, mutual fund companies will provide you with a record and make the calculations for you. I did this with the American Century Ginnie Mae Fund, and it was no sweat. They even separated out the short-term gains for me from the last year from the long-term gains. They did all the work for me. But I didn't realize this so I set up a spread sheet and entered the information quarterly for a dozen years."


Most fund companies will provide you with a "dollar cost averaging" share price, even if you just sell a few shares. I know some funds will provide a list of all the shares you bought, including reinvested dividends, when you sell the whole fund, but that doesn't matter anyway, since selling the whole fund by definition gives you the dollar cost average of shares.

The problem Paul and I are talking about has to do with selling just some shares, whether to rebalance during accumulation or gradually withdrawing money as you need it. In that case, if you want to minimize capital gains, you need to inform the fund company in advance which shares you wish to sell (which means you need a complete record or you will have to get the complete record from the company). Then, you need to fill out a complete list of the shares sold, with their purchase dates and prices, on your Schedule D. If you've been reinvesting dividends for 20 years, that's a lot of potential entries to sort through. Personally, I can handle it, but for some people the bookeeping and paperwork is too much of a pain.

Of course, there are a lot of people out there who would rather pay more taxes than fill out complex tax forms (that's how the proponents of "tax simplification" sell what will, in fact, be a redistribution of the tax burden, downward).
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