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You are here: Experts > People/Relationships > Retirement Planning > Mutual Funds > timing of share redemption
Expert: John D Smith, CFP
Date: 8/28/2007
Subject: timing of share redemption
Question
I plan to redeem nearly half of my shares in a mutual fund soon to buy a new
vehicle. This fund will be paying quarterly dividends in mid September. Is it
best to wait until after the dividend payout to redeem these shares?
Answer
Once the dividend is paid, the share price of the fund will be reduced to compensate for this dividend so the financial aspect is neutral. The one thing to consider is how the dividend will be taxes. If it is non qualified dividend then it will be taxes at ordinary income tax rates which are more than long term capital gains rates. If you sell the fund and pay long term capital gains then it may make sense to sell before the dividend is paid. I hope this helps. Keep in mind if you decide to sell, you need to sell before the owner of record date as you will still receive the dividend if you own the funds shares on this date.
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