Diamond Hill Small Cap I (DHSIX)

These Mutual-Fund Holders Should Brace Themselves for a Big Tax Bill

For some of the millions of investors who hold mutual funds in taxable accounts, there may be an unwelcome surprise in their year-end fund statement: a large capital-gains distribution. If a mutual fund is held in a tax-deferred account, such as a traditional individual retirement account or a 401(k), the distribution may not be subject to tax until the fund shares are sold. As investors pulled money from actively managed mutual funds for much of this year, continuing a trend favoring passive index funds, many fund managers were forced to sell winning holdings to meet redemptions.