From CNBC: 2024-12-30 14:30:41

Investors can avoid taxes on capital gains by choosing exchange-traded funds (ETFs) over mutual funds, which are less tax efficient. ETFs allow for tax-free trades due to in-kind creations and redemptions, benefiting those with taxable accounts. The tax advantage is most apparent for stock funds, with just 4% of ETFs expected to distribute capital gains in 2024.
ETFs offer tax advantages over mutual funds, particularly for investors in taxable accounts. The tax savings come from the structure of ETFs, which allow for tax-free trades through in-kind transactions. This advantage is especially beneficial for stock funds, with only a small percentage of ETFs expected to distribute capital gains in 2024.
While ETFs provide tax advantages for many investors, certain holdings may not benefit from in-kind transactions. Assets like physical commodities and certain derivatives may not qualify for this tax advantage. Additionally, certain countries may treat in-kind redemptions of securities as taxable events, limiting the tax benefits for some ETF investors.

Read more: Exchange-traded funds have ‘tax magic’ that many mutual funds don’t offer