Question

The tax consequence of transferring proceeds from one fund to another within the same family of funds is:

A)losses are deducted and gains are deferred.
B)gains are taxed and losses are deferred.
C)no gain or loss is recognized until redemption.
D)on the date of the transaction, any gain or loss is recognized for tax purposes.

Answer 1

Transferring proceeds from one fund to another within the same family of funds usually means no gain or loss is recognized for tax purposes until redemption, making the transfer a non-taxable event.

Step-by-step explanation:

The tax consequence of transferring proceeds from one fund to another within the same family of funds generally is that no gain or loss is recognized until redemption. This is because such transfers within the same fund family are typically structured as non-taxable events. For example, when you transfer investments from one fund to another in a traditional IRA, you are not taxed on any gains or losses at the time of the transfer; instead, taxation occurs upon withdrawal from the account. This allows the account holder to adjust their investment strategy without immediate tax implications. The taxes are deferred until the individual redeems the investment, meaning they withdraw the money from the IRA. However, it's essential for investors to understand the specific tax rules related to their accounts as different retirement accounts (like Roth IRAs) might have different tax implications.