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  • Wisconsin_Badger Wisconsin_Badger Nov 12, 2007 11:36 PM Flag

    For those buying CGM funds now

    Some on this board have discussed how they're putting new $ into CGMFX (or others) now. If you are, great, but here's a community service reminder: You'll want to pull out newly invested $ before Dec 26th COB, the date the dividend is recorded. (You can put it back in a day later.)

    Why? Otherwise you'll recieve the full dividend on each share, which is taxable. An extreme case: Put in $100,000 this December and a few weeks later you'll get about $13,000 sent back (or reinvested) for which you owe taxes.

    If you're not familiar with this issue, talk to your broker. A family member of mine learned about the issue the hard way so I thought I'd send out a reminder here.

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    • I absolutely HATE TAXES!

      So I look at the dividend with mixed emotions. Since we are up so much this year, it won't be a double whammy where you lost money AND had Cap Taxes aswell.

      Also be aware that cashing in the full amount might end up casoting more than what the dividend would incur in taxes, depending on how long you have held the fund.

      So I would definitely consult a tax accountant about the wisdom in selling this in a taxable account.

      But don't cash in all the check because the fund might end up closing at some point, Then you are locked out.

      The best case scenario is to have this in a retirement fund (non-taxable).

      Re-invest the distribution into more shares. No brainer.

      • 1 Reply to mmcanmd
      • One Final question...

        There is absolutely no benefit then to NOT sell my shares in a taxable account before the record date??

        I was thinking if someone lets say suffered losses on other investments, they wouldn't mind keeping the shares and paying the taxes to offset losses??

        I am assuming this wouldn't be the case because if for example the NAV of CGMFX is $60 the day before record date and they pay $7 per share of capital gains/dividends, the NAV will immediately adjust to $53. SO even though you have more shares reinvested, the share price is now lower. Overall, the value of your investment in the mutual fund would be same. Similar to the stock split for example.

        Can someone help me out on this? I am no means a tax guy but its hard to understand how you would be taxed on profits you didnt realize.

        I have been a shareholder since AUgust and my overall cost basis is about $50

    • Many thanks Wisconsin B. I will be selling from my trading account around Christmas time and buying back in first of the year. I'll just hold on to the CGMFX shares I own in my IRA account.

    • If this fund is part of a Self Directed Brokage account for a 401k plan Then this would not apply then right? I assume that dividends and etc would not be taxable at this time?

    • Im confused how taxes on capital gains and distributions work in respect to mutual funds.

      I initially bought this fund back in August and my average cost basis per share is $50 now. I have added in increments since the initial purchase.

      Are you telling me that all that matters for tax purposes is the amount of shares I own not what my cost basis for purchase is?? When you buy a stock, you only pay capital gain taxes on actual profits (difference of what you sell and bought for). Is this not the case with mutual funds?

      If my average cost basis is $50 per share and lets just say it ends the yr at $54 per share, I will have to pay more capital gains than the $4 profit I made on each share??

      So someone that bought 200 shares at the beginning of the yr for $35 would be taxed the same as me since I have the same amount of shares even though my cost basis is much higher??

      SO you are basically paying taxes for some gains you didnt realize since you were not in the fund when he may have sold for a short term profit...

      Can someone fill me on this works because most of the mutual funds I own have low turnover but I couldnt resist this fund since Heebner has proven time and time again he can actively manage better than most

      • 2 Replies to stevo3317
      • You will be taxed on the distribution (in a taxable account). It is VERY DANGEROUS to buy any fund in the next 30 days, because you will pay taxes on money you didn't earn.

      • Yes, that is how it works. It doesn't matter what your cost basis is, you're going to get the full dividend, so essentially your cost basis is what the fund price was on Jan 1st, 2007.

        That's why you can get suck with a big tax bill even if you only owned it for a few months or weeks.

        If you get out of the fund before the dividend record date, you can pay capital gains based on your cost basis. Then get back in a day later (or Jan 1, or whatever you want).

        Hope that helps!

 
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