Be careful. Before investing large amounts for a taxable account over the next few weeks, consider doing some research to make sure you don't get caught in a classic year-end tax trap that often surprises mutual-fund investors.
Mutual funds typically announce capital-gains distributions in late November and December.
If you're investing for a taxable account, check to see whether the fund you're interested in is planning to make a distribution in coming weeks—and, if so, how large and when. Many funds post this information on their website.
Keep in mind that those distributions typically are taxable. If you invest now and get a hefty distribution before year's end, those capital gains are "partly a return of your investment that you nonetheless owe taxes on for this year," says Greg Hinkle, treasurer of the T. Rowe Price Funds.
If that payout would result in a significant tax hit, consider delaying your investment in that fund until after the date to qualify for the distribution. Or check to see if there are similar funds that aren't planning large taxable payouts.
But don't allow tax issues to replace investment considerations, investment advisers say. Investors should remember that tax considerations "should not play a more prominent role than their strategic plan," says Stuart Ritter, senior financial planner at T. Rowe Price. "Also, the timing the market (e.g., waiting to invest—and potentially missing out on gains) has not proven to be an effective long-term strategy."
Moreover, Mr. Ritter notes, "your cost basis is adjusted for whatever payout you receive now—lowering your tax liability in the future."
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