Advice for a very profitable but tax-inefficient fund

[disneysteve]

I have one taxable mutual fund that has done extremely well over the years. The problem is that the fund is not at all tax efficient. For 2006, it generated over $7,000 in dividends and capital gains. For 2007, it was just under $9,000. While I'm certainly not complaining about the fund's performance, it does create a big tax bill every year. I don't really want to get completely out of the fund, and selling all of the shares would just generate a huge capital gain. Is there anything at all I can do to decrease my tax liability?

One thing I did do a couple of years ago was to donate a block of appreciated shares to charity. That reduced my holdings without generating any taxes for me. I could do that again to further cut back.

Any other thoughts?

[jIM_Ohio]

gift it
invest in something highly speculative. You could either make out really big (another tax bill problem) or use the losses to offset the gains.

There is a year where capital gains goes to zero, I think (is that 2009?) based on the bush tax cuts. Sell it then.

do not reinvest dividends and capital gains into the funds (reinvest elsewhere) over time the tax bite will get smaller.

In retirement, use a fund that for income, and that 7k should be taxed at much lower rates than 401k withdraws.

what is tax inefficient today (during accumulation) might be among the most tax efficient things when you withdraw (during retirement).

[disneysteve]

Thanks, Jim. Several good ideas there.