Re: 401k and dividend tax

John Qyindi wrote:
> 
> I was wondering how 401k plans treat diviedend tax.
> 
> Like if I hold a mutual fund in my 401k that mutual fund pays some
> type of tax on the dividends on the stock it owns.  Do I as an
> investor in that fund thru the 401k end up paying dividend taxes
> indirectly even though the mutual fund is in a 401k ???
> 
> Just wondering if the person that invests through a 401k is treated
> differently then the person that invests in the same mutual fund but
> not thru a 401k...
> 
> thanks!

The only taxes I know of that US mutual funds pay are foreign taxes. 
For taxable accounts, these show up as paper profits, which you can
subtract out on your income tax return.  For instance, a fund may
receive 10c/share in dividends, of which it uses 2c to pay foreign
taxes.  They distribute 8c to you, but on paper, declare a 10c
dividend.  You usually get to reduce your income by 2c on your tax
return, reflecting your net income from the investment.  So effectively,
you pay taxes on 8c of net income.

In a tax-sheltered account (401k, traditional IRA, etc.) you declare
income only when you pull money out of the account.  For this foreign
fund, there will be only 8c to pull out, so you'll pay taxes on 8c, not
10c - the same effect as in the taxable account.  
  
-- 
Mark Freeland
[EMAIL PROTECTED]