Clark
recently purchased shares in ABC mutual fund with
some funds from the sale of his home. The fund
has announced that it will pay Clark a $1,200 dividend
and $4,300 in capital gains distribution. All of
the following are options that Clark can take with
the distributions EXCEPT:
a) Payment of dividends in cash, and reinvestment of
capital gains in additional shares
b) Reinvestment of both dividends and capital gains
in additional shares
c) Defer the distribution until the following year,
to take advantage of a lower tax bracket
d) Payment of dividends and capital gains distributions
in cash
Answer: The
correct answer is c).
When an investor receives declared dividends and capital
gains distributions, they can implement any of the
options mentioned above, with the exception of deferring
the distribution until the following year. Unfortunately,
taxes must be paid in the same year as the dividend
and capital gains distribution occurred, unless the
account is a tax-deferred account or retirement plan.
