Scott On Money

If you watch your mutual funds closely this time of year you might end up with a sinking feeling in your stomach. You might see your mutual funds share price drop precipitously. Last week I had one hit me with a 15% drop.

Why do mutual funds do this? The tax man makes them. The fund has to make distributions to account for the capital gains and dividend income it receives. As with most things governmental it is far from fair. If you buy a fund and it has a distribution the next day you get to pay the tax bill for the last year.

Before you buy a mutual fund check with the fund or your broker on when the distribution date is. If it is within the next month or two consider waiting until after the distribution to invest.

Of course if you do all of this in your tax deferred accounts it will not make a bit of difference.

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In 2006 you can contribute up to $15,000 to your 401k. Be careful as all the usual government caveats and restrictions apply.

One additional note for those of you in the age fifty and older club is that you may be eligible to contribute and extra $5,000 as a catch up contribution.

As the tax year comes to an end make sure you are at least taking advantage of your employer match. If you managed to max out your 401k then congratulations, that was hard but fruitful work. Taxes are the biggest expense for most people, setting aside $15,000 tax free is a phenomenal accomplishment.

For more details checlk out the IRS site.

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