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1.
An ETF with a high turnover ratio is more likely to be tax inefficient?
False. The more an index changes its holdings, the more the ETF tracking the index will have to change its portfolio, which increases the likelihood of taxable events when the ETF sells shares of underlying positions.
2.
In-kind redemptions are _______.
Non-taxable. They are non-cash transactions in which shares of the ETF are exchanged for the underlying holdings.
3.
How are ETFs that invest in futures contracts taxed?
60% long-term gain and 40% short-term gain. Futures contracts are marked to market at the end of the year and any gains are taxed as 60% long-term and 40% short term capital gains.
4.
Most ETFs are index funds. How does this affect their taxability?
They don't trade their underlying securities very often, which means fewer taxable gains. Fewer capital gains mean fewer taxes.
5.
ETFs that invest directly in precious metals, such as silver or gold, are taxed as _______.
Collectibles. This has implications for the tax rate used.
