House lawmakers have introduced a bipartisan bill to change the way mutual fund investors’ capital gains distributions are taxed.
The Generating Retail Ownership Through Long-Term Holding Act, or GROWTH Act, would defer taxation of automatically reinvested capital gains distributions until shareholders actually sell their fund shares. The change would allow mutual fund shareholders to keep more of their own money working for them longer, the Investment Company Institute said in a statement.
The bill was introduced March 11 by Rep. Beth Van Duyne, R-Texas, and Rep. Terri Sewell, D-Ala.
“As American families look to (diversify) their investments and craft a strategy focused on continued growth, Congress must ensure that parity exists among mutual funds and other investment products,” Sewell said in a statement. “The GROWTH Act will ensure that these mutual funds remain an accessible means for millions of Americans to save for retirement.”
Currently, mutual funds must distribute any dividends and net realized capital gains earned on their holdings over the prior 12 months, according to an explainer from T. Rowe Price. The distributions are taxable income even if the money is reinvested in shares in the fund.
ICI President and CEO Eric J. Pan welcomed the bill’s introduction and said in a statement that it will “permit Americans to enjoy compound returns, incentivizing them to invest, and have them pay taxes upon exiting the mutual fund.”
Lindsey Keljo, managing director, associate general counsel and head of the Securities Industry and Financial Markets Association’s asset management group, said the bill would bring tax parity between exchange-traded funds and mutual funds.
“Mutual funds are a crucial tool used by millions of Americans working to save for the future,” Keljo said in a statement. “The common-sense policy changes … would establish fair tax treatment of these products and allow savers who choose to invest in mutual funds to keep more of their funds invested for the long-term.”
