How do capital gains work in a tax-qualified account vs. a non-qualified account?
Shareholders who own mutual fund shares through a tax-qualified account (tax-deferred account such as a 401(k) or Traditional or Roth IRA) do not pay taxes on capital gain distributions currently. Income from 401(k) or traditional IRA accounts is generally taxed as ordinary income when withdrawals are made. Earnings on Roth accounts may also be taxed upon withdrawal if holding period requirements are not met. If mutual fund shares are held in a non-qualified (taxable) account, the distribution is a taxable event – even if the distribution is automatically reinvested in additional fund shares.
