Choose wisely. There is only one correct answer to each question.
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1.
Which investments do an effective job of restraining capital gains distributions?
All of the above. All of these investments are structured in such a way as to keep the lid on capital gains distributions.
2.
Mutual funds with a lot of turnover are best for _______.
Tax-sheltered accounts. Mutual funds with a lot of turnover generally generate a load of capital gains that investors cannot control, and are therefore best suited to tax-sheltered accounts.
3.
Why would exchange-traded funds be good choices to be held in taxable accounts?
They limit capital gains payouts. This is a feature that is built in to them.
4.
Income from cash investments is taxed at _______.
Ordinary income tax rates. For this reason, it might make sense to keep your cash in tax-sheltered accounts; however, cash's value as a way to meet near-term needs means most people will keep it in taxable accounts for easier access and lack of withdrawal penalties.
5.
Investing from a tax perspective often contradicts its practicalities. One example of why is that _______.
Investors often hold long-term stocks in tax-sheltered accounts even though those stocks are taxed at low capital gains rates. From a tax perspective, it doesn't make sense to do this. But practical reasons override that.
