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New Tax Rule Aids Funds With Yield; Lifts Post-Tax Returns; Equity-income funds helped, but their gains lag in new bull market.(MUTUAL FUNDS)(INVESTMENT TRENDS)
Byline: PAUL KATZEFF
New tax rules let shareholders keep more of their mutual fund capital gains and dividend income. But shareholders who want to get the most out of the changes will have to do their homework.
Not all gains and income are eligible for the new, lower 15% rate.
They should also bear in mind that some types of funds typically pay higher dividends than others.
Generally, equity-income funds stand to be winners, says Sam Beardsley, vice president for investment taxation at T. Rowe Price.
Their income is more likely to be paid from eligible corporate dividends. "In contrast, balanced funds may pay at least part of their income from bond interest," Beardsley said. "And bond interest does not qualify for the new rate."
Bond interest, whether received through a fund or directly from a security, will be taxed at ordinary income rates. They can be as high as 35%. Still, even the ordinary income brackets are reduced under the tax bill.
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