Is it worth it to close a mutual fund earning less than 3% to pay off some debt that is serviced by interest of 9% and how much can we expect to pay in tax when this mutual fund is closed?
[[Is it worth it to close a mutual fund earning less than 3% to pay off some debt that is serviced by interest of 9% and how much can we expect to pay in tax when this mutual fund is closed?]]Everything else being the same, it would certainly seem so. You have an interest "spread" of 6% that you would be saving on an annual basis. The problem is: everything else never stays the same. As far as the tax issues on the sale of your mutual fund, only you can answer that question. It will be based upon your original cost in the mutual fund shares, and your gain on that sale. If you have held the fund for more than a year, it is likely that most of your gain will be considered long term, and will be given preferred tax treatment. You can read more about the capital gain tax issues in the Taxes FAQ area. We also discuss many details of determining your "basis" in mutual funds in The Motley Fool Investment Tax Guide, in addition to a lengthy discussion of the capital gains tax issues.TMF TaxesRoyWant 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 (http://www.foolmart.com/market/product.asp?pfid=MF+013+I) to read more about this amazing collection of tax information. (Apologies for the shameless plug…but it is a pretty good book…if I do say so myself). In addition, if you would like to visit the Taxes FAQ (Frequently Asked Questions) area, click on http://www.fool.com/school/taxes/taxes.htm 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 http://www.irs.ustreas.gov to go directly there.
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