Capital gain distributions are payouts you might receive from a mutual fund when the fund sells investments for a profit. The profit is divided among shareholders as capital gain distributions—based on how much you own and usually paid in December.

When the fund sells an asset at a gain you get part of the profit as a capital gain distribution.

Exchange-Traded Funds (ETFs) can have capital gain distributions, but they tend to be less frequent and smaller compared to mutual funds. This is because ETFs are structured in a way that allows them to minimize capital gains through a process called "in-kind" redemptions. This process involves exchanging securities within the fund for shares, which helps to avoid triggering capital gains. However, there are situations where an ETF might still distribute capital gains, such as when the fund rebalances its holdings or when there are significant redemptions that cannot be handled through the in-kind process.

To find out if your mutual fund or ETF has made capital gain distributions, follow these check Fund Company Website or Your Broker or Look at Your 1099-DIV Form (For Taxable Accounts).

It's always a good idea to check the specific Mutual Fund or ETF's prospectus or consult with a financial advisor for detailed information on potential capital gain distributions.

If your fund pays Capital Gain Distributions, add a turnover rate to the account.

The tool will take the account balance and cost basis, realize the turnover rate as gains, and tax the gains at your long-term capital gains rate. Passive investors (e.g., ETF/index fund holders) typically have a low turnover rate. Actively managed portfolios or frequent trading may result in higher rates (e.g., 10%+).

Example: With a $100,000 balance and $70,000 cost basis, a 10% turnover rate means $3,000 in gains (10% of the $30,000 unrealized gain). This amount is taxed and added to your cost basis in future projections.