Benjamin Franklin was right about death and taxes, but it's a shame that we keep forgetting his words of wisdom.

For example, many of us have forgotten that mutual fund ownership can lead to whopping tax hits — largely because many of our funds still had lingering losses from the financial crisis. But MarketWatch's Jonnelle Marte warns that "now that the market is hovering near five-year highs and many funds are back to their pre-crisis levels, fund managers are running out of losses to offset those gains, forcing them to pass along the distribution — and associated tax bill — to investors."

Marte notes that some managers "try to minimize the tax consequences of their investment decisions by avoiding dividend-paying stocks, holding shares for more than a year to capture the long-term capital gains rate, or offsetting stock gains with losses," but not all fund managers do this.

Facing a huge tax bite, for a mutual fund that was doing so-so to begin with, might be enough to drive some investors away, Marte writes. Indeed, some may be attracted to index funds because they are more tax efficient.

Read more on this subject in MarketWatch  

Edited by: Tommy Fernandez


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