Contact Us
Firm Overview
Why Legend Is Different
Client Types
Professional Biographies
Frequently & Rarely Asked Questions
Risk Spectrum
Investment Strategies
Second Opinion
Global Investment Pulse
Event Calendar
Press Center
Legend News
Clients Only
Career Opportunities
Directions
Newsletter Sign-up
Site Search
Site Map
Home
Tell A Friend About This Website
 
 
 
Informational Booklets   
Phone: (412) 635-9210
  (888) 236-5960
Connect With Legend:
Subscribe to me on YouTube

Not All ETFs Are Tax-Efficient Anymore

It used to be simple. One reason to consider investing in exchange-traded funds (ETFs) was that you would make out better at tax time than if you put your money into standard index mutual funds. But as ETFs have thrived, with exponential growth since their debut two decades ago, they’ve branched out from stocks to bonds and now to commodities and currencies. While those more esoteric ETFs provide a convenient way for ordinary investors to participate in hard-to-tap markets, they also bring tax complications that can hit you hard even if you hold on to your shares.
 
Standard equity ETFs resemble index mutual funds, in that both may be designed to track a stock benchmark. But when investors redeem mutual fund shares, the fund manager may need to sell holdings to come up with the cash, and that can generate taxable capital gains that the fund passes on to shareholders. ETFs, in contrast, are more like stocks; they’re traded on exchanges, and most transactions involve existing shares. So, there’s less selling of the assets in the fund and fewer immediately taxable gains, though you’ll still owe taxes if you sell your shares at a profit.
 
Many newer ETFs, however, are tied to the value of commodities or currencies, and those may be taxed in many entirely different ways. Such funds are often organized as trusts or limited partnerships, complicated structures that may generate several kinds of taxes. And these ETFs can own a very wide range of assets, from actual currencies and commodities to all kinds of derivatives—futures, forward contracts, options—that may be subject to various levels and timing of taxes. In many cases, you end up paying more than the 15% rate that applies to long-term capital gains of stock ETFs and mutual funds.
 
Sometimes, you’ll even be taxed on gains the fund hasn’t realized. The IRS may require a commodities fund that holds futures contracts, for example, to “mark to market” its positions in those contracts at year’s end— and you may be responsible for gains that don’t yet exist. You could also be on the hook if you own shares in a gold ETF that holds bullion or gold coins. Shareholders of those funds are subject to a tax on “collectibles”—at a 28% rate for long-term gains. The earnings of currency funds, meanwhile, may be taxed as interest, at ordinary income rates of as much as 35%.
 
In most cases, potential tax liability shouldn’t be a deal-breaker when considering an investment. Yet it is a consideration, and it’s a factor we look at when working with clients to construct investment portfolios that fit their financial goals, investing timetable, and investment risk-tolerance. If you wonder whether ETFs belong in your investment mix—and what kind of taxation you might face—please make an appointment so we can discuss these issues.

This article was written by a professional financial journalist for Legend Financial Advisors, Inc. and is not intended as legal or investment advice.




INDEX
  • Watch Out For ''Grandparent Scams''
  • Tune Into The Tax Break For NUA
  • How You Can Manage Risk Aversion
  • When To Disclaim An Inherited IRA
  • IRS Reveals The ''Dirty Dozen'' Tax Scams For '17
  • Timely Tax Angles To Dividends
  • 7 Financial Steps Forward In A Second Marriage
  • IRS Applies IRA Rollover Limit To Coverdell ESAs
  • Seek The Comfort Of A Pet Trust
  • Mutual Fund Sell Downs And Other Unintended Consequenses For Investors:
  • What's The Truth About Probate?
  • Britain Votes To Leave The European Union, Surprising The World
  • Five Big Tax Penalties To Avoid At All Costs
  • 5 Reasons To Amend Your Estate Plan
  • Top Court Mandates 401(k) Fee Duty
  • Turning Up The HEET For Education
  • Saving For Private Or Prep School? A Tax-Smart Way
  • Here Are 6 Common Roth IRA Mistakes To Avoid
  • IRS Zeroes In On Dirty Tax Scams In 2015
  • Combine Investment And Tax Benefits In 529 Plans
  • Want To Get Your Business Noticed By The News Media?
  • Learn The Ins And Outs Of Education Tax Breaks
  • Locked Out Of A Roth IRA? Go In Through Back Door
  • How To Manage Your Tax Brackets Now And Later
  • Fill Up Tax Brackets To The Brim
  • Why Roth IRAs Are Still Red-Hot
  • Want To Get A Copy Of Your Credit Report? It's Free!
  • 5 Tips That Can Help Get Your Kids Into College
  • Reminders On Your Beneficiary Choices
  • Enter The Five Dimensions Of Federal Income Taxes
  • How Did The Federal Government Shutdown Affect The Economy?
  • SLATs Fit Through The Cracks In Estate Plans
  • The Bypass Trust: Not Pronounced Dead Quite Yet
  • When Do You Need An Appraisal?
  • 7 Major Tax Changes In The Fiscal Cliff Law
  • What Is Safe For You To Put Into A Safe Deposit Box?
  • Dig Deep Into ''Treasure Assets''
  • It's A Question Of Proper Balance
  • Tough Talk On Hardship Withdrawals
  • Stock Option Rules After Job Loss
  • Don't Put Mid-Year Moves On Hold
  • Which Retirement Funds Should You Withdraw First?
  • Is The Federal Reserve Risking Hyperinflation?
  • A Common Error In Powers Of Attorney
  • When Is Life Insurance A Sensible Solution?
  • 5 Excellent Tax Blogs And Websites
  • Knowhow On Year-End Tax Planning
  • A Once-In-A-Lifetime Estate Tax Choice
  • Set Up Your Trust To ''Fail'' On Purpose
  • Charitable Rollovers: There's Still Time
  • 7 Reasons To Update Your Financial Plan
  • Website Matches Volunteers With Non-Profits In Need
  • Trust Protector Is Useful, But Little-Known Solution
  • Tax Tips When You Acquire Software
  • Not All ETFs Are Tax-Efficient Anymore
  • The Delicate Dynamics Of China-U.S. Economic Policy
  • U.S. Government Bailouts Have A Mixed Record
  • Planning Your Retirement Using Stock Options
  • What Historically Follows Severe Economic Crises
  • Despite The Global Crisis, The World Is Getting Better
  • Will The New Silicon Valley Transform The Economy?
  • What A Difference A Year Makes In Ten-Year Returns
  • Now's A Time To Recall Financial Planning Basics
  • The Importance Of Year-Round Tax Planning
  • Federal Estate Tax Exemption... Going Up!
  • Court Ruling Limits Fee Deductions For Trusts
  • Not All Variable Annuities Have High Fees
  • Are You Putting Too Much Money Back Into Your Business
  • Credit Crunch Places Focus On Rating Agencies
  • Find An Expert In Almost Anything On The Internet
  • Beware Of Social Security Identity Theft
  • Regulatory Guidelines Update
  • Succession Planning For Solo Businesses
  • Energy Systems Scale and Timeline
  • The Oil Patch Profit Squeeze
  • Free Credit Reports Available Online
  • Don't Forget About Roth 401(k)
  • Understanding the Importance of a Fiduciary Standard
  • Emerging Market Food Consumption Growth Equals Rising Prices
  • Emerging Market Food Consumption Growth Equals Rising Prices
  • Timber As A Liquid Investment
  • Emerging Market Food Consumption Growth Equals Rising Prices
  • Ethanol: Salvation or Panacea?
  • Timber Facts
  • Bank Loan Funds - A Primer
  • A Primer On Managed Futures
  • REITS: A Very Good Portfolio Diversifier, But Should You Invest In Them?
  • Does Investing Internationally Still Diversify Your Portfolio?
  • Another Way To View The Current Valuation Of REIT Sector
  • Understanding Risk-Preparing For The Unseen
  • What Is Shorting Expense?
  • How Dangerous Is A Dollar Crash?
  • How Volatile Can The Stock Market Be?
  • Too Many ''Phish'' In The Sea
  • GMO 7-Year Asset Class Return Forecast Is Bleak
  • The Case For Industrial Metals
  • Identity Theft In The New Year
  • Ways To Improve The Score
  • Know The Score
  • Total Credit Market Debt (All Sectors) As % Of U.S. GDP
  • To Reinvest Or Not To Reinvest
  • Why Not Alternative Fixed Income Investments?
  • Just How Expensive Is The Market?
  • Beware of Brokerage Firms' Misconduct
  • Identity Theft : Correct Those Credit Reporting Errors
  • Risk-Controlled Investing
  • Q & A With Robert Arnott
  • Identity Theft : Applying For Credit? Better Check Your Credit Report First
  • Identity Theft: Everyday Prevention
  • Identity Theft: Help Is On Its Way
  • Identity Theft: Tips to Protect Yourself
  • Identity Theft: What Documents Should You Shred or Store?
  • Identity Theft : Don't Fall For That E-Mail!
  • Identity Theft : One More Reason To Protect Your Credit
  • Identity Theft: A Note About Social Security Numbers
  • What Do Rising Interest Rates Mean For Money Market Yields?
  • Section 529 Plans Are Popular But Not The Only Way To Go
  • The Importance Of Commodities In A Portfolio
  • A Tale Of Two Hedges
  • Bank Loan Funds: A Great Fixed Income Investment As Interest Rates Rise
  • REITs: A Great Diversification Investment
  • What Is Risk?
  • How To Find A Great Financial Advisor?
  • Is It Time To Find A New Financial Advisor?
  • Year-End Tax Planning Can Help Generate High Return On Investment
  • 4 Steps To A More Secure Investment Portfolio For Your Retirement
  • Traditional Investing May Decrease Your Retirement Lifestyle
  • Understanding Deflation
  • Tax Issues To Consider When Buying A Long-Term-Care Policy
  • Investing In Times Of Uncertainty And Risk: The Importance Of Diversification
  • Evaluating The Quality Of A Company's Earnings
  • Yesterday's Great Companies
  • 2001 Tax Relief Act Changes Education Planning
  • A Retirement Plan Primer After The 2001 Tax Act
  • Beware Of Common Home Repair Scams
  • Custodial Accounts: One Way To Make Gifts To Children
  • Estate Taxes To Be Reduced Then Repealed In 2010
  • Faulty IRA Conversions Can Lead To Tax Penalties
  • Many Individuals Pay Private Mortgage Insurance Beyond When It Is Necessary
  • Rethinking Estate Planning
  • Retirement Plan Contribution Limit Changes
  • Shopping For A Bank Account That Pays The Highest Possible Rate Of Interest
  • Your Medical File Report May Need A Check-Up
  • Do It Yourself Tax Preparers Watch Out: Tax Answers From IRS Centers Oftentimes Are Incorrect And/Or Insufficient
  • Five Tips For Preventing Thefts From Your Checking Account
  • Home Office Deductions: Hoops To Jump Through
  • Income Tax Effect On Single And Married Taxpayers
  • Income Tax Planning For Investments
  • Property Tax Challenges Should Not Be Overlooked
  • The IRS Will Follow Your Wealth To The Ends Of The Earth
  • When Do You Need Life Insurance
  • Year-End Tax Defferal Planning
  • Is Your 401(k) Plan A Failure?



  • ©2017 Legend Financial Advisors, Inc.®. All rights reserved.