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Mutual fund managed accounts
Mutual fund managed accounts, also called mutual-fund
wraps, invest in a variety of mutual funds rather than in individual
securities. They’re intended to offer mutual fund investors
one-stop shopping and the benefit of professional fund picking.
An investment adviser buys and sells a package of funds to suit
a particular financial profile and allocates shares of those funds
to you and other individual investors in proportion to the amount
you have invested.
The adviser monitors fund overlaps, rebalances
holdings, and consolidates — or wraps — the charges
for its services into an asset-based fee. Minimum investment requirements
are typically between $10,000 and $25,000, though the amount may
be much higher.
A major difference
The tax advantages of owning securities directly
don’t apply to these accounts, since what you own are shares
in a number of mutual funds. However, if you use this type of
managed account for your
individual
retirement account (IRA)
or a
rollover
account holding assets from your employer-sponsored retirement
plan, current tax savings are a less important feature. Taxes
on any
capital
gains
— and
distributions
— are deferred until you withdraw from a traditional account.
In the case of a tax-free
Roth
IRA,
you owe no tax at withdrawal if you follow the
rules.
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