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Funds 104: Taxes on Mutual Fund Income

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1.
When you exchange mutual fund shares from one fund to another in a fund family, it is a tax-free exchange.
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False. An exchange is considered a sale and purchase for tax purposes, except in qualified retirement plans.
2.
Capital gains distributions are taxed at your ordinary income tax rate.
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False. They are taxed at either the short-term or the long-term rate, whichever is applicable.
3.
Which IRS form reports withdrawals from retirement plans?
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1099-R. This form reports retirement plan withdrawals.
4.
Income from municipal bond mutual funds may be taxable on the state level.
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True. In some cases, they are taxable on the state level.
5.
When is the worst time to buy a fund, from a tax standpoint?
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Right before a fund makes a distribution. If you buy a fund just before it makes a distribution, you'll pay taxes on that distribution, even though you haven't enjoyed any of the appreciation that led to that distribution.