Distributions may be taxable if taken in a year when Hope Scholarships and Lifetime Learning tax credits are claimed. A mutual fund is an investment company that pools together the money of many people who have similar investment objectives. Monies are invested in securities selected to achieve fund objectives. When you purchase a mutual fund, you are buying shares of ownership in all of those securities. You can also realize a profit if you sell your shares at a higher price than you paid for them.
Mutual funds are after-tax investments.
As such, you can add as much money as desired to mutual fund accounts. You are taxed annually on your mutual funds net income and realized gains. If you transfer monies between funds, it is a taxable event that results in capital gains or losses. You may reinvest your dividends and capital gains or receive them as a distribution. Either way they are subject to federal tax.