AllianceBernstein, 2004, Biting Back at Taxes: Exploring Tax-Managed Mutual Funds
, New York, NY, AllianceBernstein Investment Research and Management.
But in the past five years no new type of fund has provided more good news for certain investors than tax-managed mutual funds.
(Today there are more than 10,000 funds in existence.) For tax conscious investors, tax-managed mutual funds are one solution to the problem of taxable mutual fund distributions.
Although there are fewer than 100 tax-managed mutual funds (see exhibit 1, for a sampling), their stated goal of reducing the impact of federal and state income taxes on fund returns gives clients who already contribute the maximum amount to tax-favored IRAs or 401 (k) plans another low-tax way to invest in the stock market.
Exhibit 1: A Sample of Tax-Managed Mutual Funds American Century Tax-Managed www.americancentury.com Value Fund Dreyfus Premier Tax-Managed www.dreyfus.com Growth Fund Eaton Vance Tax-Managed www.eatonvance.com International Growth Fund Evergreen Tax Strategic Equity Fund www.evergreen-funds.com Fidelity Tax-Managed Stock Fund www.fidelity.com JP Morgan Tax-Aware U.S.
As CPAs try to keep pace with the best investment vehicles to help clients realize their goals, tax-managed mutual funds are an increasingly important way clients can hold down taxes, leaving more for retirement, college funding and other key objectives.
Tax-managed mutual funds operate the way most other mutual funds do.
In evaluating tax-managed mutual funds for their clients, CPAs should use the same criteria they would use to judge any other fund, including
There are, however, some clients a CPA will find particularly suited to tax-managed mutual funds, including
A study by KPMG, Tax-Managed Mutual Funds
and the Taxable Investor, found that after 20 years, a $10,000 investment in a tax-managed fund would be 25% greater than a comparable investment in an actively managed fund.