{"id":15678,"date":"2025-05-24T20:30:20","date_gmt":"2025-05-24T20:30:20","guid":{"rendered":"https:\/\/finderica.com\/?p=15678"},"modified":"2025-05-24T20:30:20","modified_gmt":"2025-05-24T20:30:20","slug":"deferred-capital-gains-tax-on-mutual-funds-lawmakers-pitch-rule-change","status":"publish","type":"post","link":"https:\/\/finderica.com\/?p=15678","title":{"rendered":"Deferred capital gains tax on mutual funds: Lawmakers pitch rule change"},"content":{"rendered":"
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If you own mutual funds, year-end payouts can trigger a surprise tax bill \u2014 even when you haven’t sold the underlying investment. But some lawmakers want to change that.<\/p>\n

Sen. John Cornyn, R-Texas, this week introduced a bill<\/a>, known as the Generate Retirement Ownership Through Long-Term Holding, or GROWTH, Act. If enacted, the bill would defer reinvested mutual fund capital gains taxes until investors sell their shares.<\/p>\n

Bipartisan House lawmakers introduced a similar bill<\/a> in March.<\/p>\n<\/div>\n

<\/a>Why mutual funds incur capital gains tax<\/h2>\n
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When you own mutual funds in a pre-tax 401(k) or individual retirement account, growth is tax-deferred. But if you hold assets in a brokerage account, capital gains distributions and dividends incur yearly taxes.<\/p>\n

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Depending on performance, some mutual funds can spit off substantial gains during the fourth quarter. In 2024, some paid double-digit distributions<\/a>, Morningstar estimated.<\/p>\n

These payouts are subject to long-term capital gains taxes of 0%, 15% or 20%, depending on your taxable income. Some higher earners also pay an extra 3.8% surcharge on investment earnings.<\/p>\n

About $7 trillion of long-term mutual fund assets held outside of retirement accounts<\/a> could be impacted by the legislation, according to the Investment Company Institute, which represents the asset management industry.<\/p>\n<\/div>\n

<\/a>Bill would ‘provide parity’ for mutual funds<\/h2>\n
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In a statement Wednesday<\/a>, Cornyn described the mutual fund proposal as a “no-brainer” that would “help provide parity with other investment options.”<\/p>\n

If enacted, the proposal would “incentivize Americans to save and invest for their long-term goals” without the stress of an “unexpected tax bill,” Eric Pan, president and CEO of the Investment Company Institute, said in a statement<\/a> following the bill’s introduction.<\/p>\n

However, it’s unclear whether the bill will advance amid competing priorities. Lawmakers are wrestling over President Donald Trump’s multi-trillion-dollar tax and spending package, which passed in the House on Thursday, and could face hurdles in the Senate.<\/p>\n

The U.S. Department of the Treasury has also asked Congress to raise the debt ceiling<\/a> before August to avert a government shutdown.<\/p>\n<\/div>\n

<\/a>Switch to exchange-traded funds<\/h2>\n
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While deferring yearly taxes could benefit some investors, you could also make portfolio changes, financial experts say.<\/p>\n

You can avoid mutual fund payouts by switching to similar exchange-traded funds, or ETFs, which typically disburse less income, Tommy Lucas, a certified financial planner and enrolled agent at Moisand Fitzgerald Tamayo in Orlando, Florida, previously told CNBC.<\/p>\n

Of course, the trade could also trigger taxes if the mutual fund has embedded gains, which may require some planning, he said.<\/p>\n

Alternatively, investors could opt to keep mutual funds in tax-deferred accounts, such as pre-tax 401(k)s or IRAs.<\/p>\n<\/div>\n

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Artistgndphotography | E+ | Getty Images If you own mutual funds, year-end payouts can trigger a surprise tax bill \u2014 even when you haven’t sold the underlying investment. But some lawmakers want to change that. Sen. John Cornyn, R-Texas, this week introduced a bill, known as the Generate Retirement Ownership Through Long-Term Holding, or GROWTH,<\/p>\n","protected":false},"author":1,"featured_media":10180,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"rank_math_lock_modified_date":false,"footnotes":""},"categories":[196],"tags":[1118,316,2109,232,113,3738,231,1361,75,97],"class_list":{"0":"post-15678","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-finance-news","8":"tag-capital","9":"tag-change","10":"tag-deferred","11":"tag-funds","12":"tag-gains","13":"tag-lawmakers","14":"tag-mutual","15":"tag-pitch","16":"tag-rule","17":"tag-tax"},"_links":{"self":[{"href":"https:\/\/finderica.com\/index.php?rest_route=\/wp\/v2\/posts\/15678","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/finderica.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/finderica.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/finderica.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/finderica.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=15678"}],"version-history":[{"count":0,"href":"https:\/\/finderica.com\/index.php?rest_route=\/wp\/v2\/posts\/15678\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/finderica.com\/index.php?rest_route=\/wp\/v2\/media\/10180"}],"wp:attachment":[{"href":"https:\/\/finderica.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=15678"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/finderica.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=15678"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/finderica.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=15678"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}