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Don't buy somebody else's mutual fund tax liability

December 14, 2009

The end of the year is a tricky time to buy mutual fund shares in a taxable account. The tax law forces mutual funds to distribute their recognized capital gains annually, and they often do so through a big December distribution. This means you can buy an entire year's worth of tax liabilty for a mutual fund share in a single day.

Fortunately, many funds, including the Vanguard family of funds, let you know when they plan to drop the capital gain bomb. It's worth a few minutes to check these figures before invest that check from Grandma.

This is another installment in our 2009 Year-end planning series. Accept no substitutes!

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