Tax impact on selling mutual fund?

I have some money in T Rowe Price Capital Appriciation fund. I am happy with this fund. But as part of consolidating my money and making life simpler, I am planning to move this money to Vanguard S&P500 Index fund.

My question is:- When I do this, I will be selling PRWCX and buying the Vanguard fund. So, will I be paying tax for sell of the previous fund?

In short, will I owe taxes because I see the previous fund? If I don鈥檛 do this consolidation, I would be keeping money in TrowePrice fund for next 5-10 years. Will I be saving tax by not moving the money to Vanguard? Does it even matter from tax perspective that I move money or not?

Please note that this is not a tax sheltered account. It is a normal account.

Thanks for your help.

Thanks for your help. I do understand the importance of diversification. I am enough diversified. However teh idea here is that I own two very similar funds. Both in same category and invested in almost same set of companies. TRP's PRWCX and the Vanguard 500 Index. So, I would like to take money out of TRP's managed fund into my favorite index fund. So, lets not talk about diversification etc.

I need advice on following two choices from tax perspective

1. Leave money in PRWCX

2. Sell PRWCX and move money to VFINX.

Thanks again.

You'll owe capital gains on the money you made in the sale. 15% for all gains held for over a year. Ordinary tax rate for any gains on money that has been contributed in the previous 12 months.

Also simplicity isn't always good. You need to be diversified. Don't put all your cash into the one Vanguard fund. Especially with the S&P at an all-time high. Buy low, sell high. You'd be buying pretty high. Not to say it won't continue going up but it seems like the wrong time to buy it. Ultimately it's your decision.

Ok, since diversification is not an issue, then you could go ahead and sell and move it to the Vanguard fund you prefer. There are capital gains taxes but they won't be calculated until the end of the year and you might have a loss in another investment that you can use to offset the gain in PRWCX.

I personally would not do it unless you feel the Vanguard fund will outperform PRWCX. There is no reason to pay the 15% in taxes for mere simplification.

You will own capital gains tax on any gain from the TRowe fund. You will have to pay taxes on this gain someday, and right now the rate for long term gain is 15%. Also, when you buy the similar Vanguard fund, it has also gone up in value while you owned the T Rowe fund. So, you will have a higher tax basis on the new fund and when you sell, you will only owe taxes on the gains made since you bought the fund, and will not be paying again for the already realized gain on the other fund. You are only losing any potential gain on the 15% you will have to pay in taxes. Simplification of portfolios is often worth this small price, and if capital gains taxes are raised, you will actually be ahead.

I'm a big fan of T.Rowe Price, but even so.

You owe capital gains on any gain you made on the fund when you sell it.

But, an index fund like VFINX is more tax efficient than a fund that trades like capital appreciation fund. So in the long run, you may defer more taxes than you pay now.