An investor liquidates or sells an ETF such as SPY or RUT do not pay taxes on this event? I hold SPY in my 401K acccount. This won’t be subject to taxes when I sell or liquidate? Please clarify. Thanks,
Let’s be clear about investment feature and account feature. When you sell EFT, if the transcation takes place in a taxable account, there is tax consequences. You make money==>capital gain, you lose money===>claim loss against your income. Your 401K is a tax-deferred account, any transcation happens in your 401K has no tax consequences. In your case…I hope your ETF gained 100000000000%, sell it!!!
Kleine, I believe your question is related to the comparison between index funds Vs ETFs. If you want to liquidate your index fund holding, the fund manager must sell shares to raise enough cash for your redemption. If he sells shares that went up in price, he will have to pay capital gain taxes which will reduce the net return for the remaining investors. If you want to liquidate your ETF shares, the bank who issued the ETF is not involved in this transaction as you’re selling to another investor a claim against the basket of stock held by the issuer. This is why they say that ETFs are more tax efficient than index funds.
The fund manager doesn’t pay capital gains taxes; he distributes them to current investors.
JoeyDVivre Wrote: ------------------------------------------------------- > The fund manager doesn’t pay capital gains taxes; > he distributes them to current investors. This is one of the best way to piss off any client, paying taxes on a losing mutual fund holding.
Oh yeah…particularly because it happens when they replace managers.
Joey, I didn’t mean he “actually” paid the taxes …