From: Tad Borek 
Newsgroups: misc.invest.financial-plan
Subject: Re: Foreign Stock in IRA: Taxation Issue
Date: Fri, 2 Feb 2007 16:01:42 -0600
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	=psd7

Will Trice wrote:
> Would this effect be invisible on the statements of a 401(k) investor in 
> foreign mutual funds since they would not receive the type of statement 
> Elle did?  I take it that the lost withholding would not appear in the 
> past performance of the fund?

Will,
Just be sure to look at the nominal (not tax-adjusted) performance 
figures for the fund and you should see accurate numbers.

The fund will report dividend income received (from the stocks/ADRs held 
by the fund) on a net-of-tax basis. You can see this if you read through 
a fund's financial statements. It will say something like "Note: net 
dividends after $17,000,000 in foreign taxes withheld" or list the $17M 
as a line item before showing the dividend income. It's the "net" figure 
that is paid out to shareholders, and used when computing nominal yield 
for the fund. Or should be, anyway.

But that's not true of the after-tax figures. Under the SEC guidelines 
for reporting after-tax returns, if a foreign tax credit is distributed 
out to mutual fund shareholders, the fund needs to adjust performance 
figures for that (adding in the credit to the dividend and adjusting 
that total for taxes paid, at the top bracket).

So for comparing IRA/401k fund alternatives be sure to look at pre-tax 
figures if comparing yields.

And no, as an IRA/401k shareholder you won't see the actual credit, 
because you don't get a 1099-DIV for a mutual fund held in a qualified 
account (because you aren't taxed on that dividend income).

-Tad