People investing for retirement in mutual funds should not pay capital gains taxes until those shares are sold, according to Senators Mike Crapo (R-Idaho) and Tim Johnson (D-South Dakota). To keep retirement savings earning more money for a longer period of time, the senators have introduced the GROWTH (Generating Retirement Ownership Through Long-Term Holding) Act, which the Investment Company Institute supports.
The GROWTH Act would, for the first time, treat mutual fund investors the same was as those who invest in the stock market and only pay taxes when shares are sold.
The current tax policy is unfair because investors are taxed even though they have not sold their sales, Crapo said. Deferring taxes on reinvested mutual fund capital gains distributions until the investor sells their fund shares would allow investors to let their money work longer toward building personal savings goalsincluding retirement, healthcare and education.
Johnson noted, After the market decline last year, many investors found themselves in the unfortunate situation of paying capital gains taxes on their reinvested dividends, even as their fund accounts lost value.
ICI President Paul Schott Stevens praised the bill for its goal of helping Americans create a more secure financial future.
The two senators also reasoned that the legislation would advocate long-term investing and help stabilize the financial markets. This is the third time the legislation has been introduced.