Answer

Are capital gain distributions from a mutual fund always considered ordinary income? If some of the stock that the fund sold was held for more than a year (since that is taxed at 20%), would the fund make this distinction so that I could save on paying the ordinary income tax and pay the 20% tax instead?

Your mutual fund will advise you whether distributions are considered dividends or short-term or long-term capital gains. These distributions will be listed as such on your statement and on the 1099 form that you will receive to do your taxes. As you correctly point out, the type of gain depends upon the fund's holding period. Index funds, which change securities infrequently, generally through off fewer taxable capital gains than actively managed funds.