Taking Money Out of Your Investment Account

by | Sep 29, 2023 | Videos

Taking money out of your investment account can be more complex than you might think. In this week’s video, Casey walks you through the different factors that should be considered.

Taking money out of the wrong place could cause a penalty or generate serious tax consequences. If you’re investing money in the stock market you should be aware of how selling those investments and taking the money out of the account works.

Tune in to get up to speed!

Show Notes

Your Roth Conversion Questions Answered – Mullooly Asset Podcast

Taking a Hardship Withdrawal From Your 401(k) – Mullooly Asset Show

Taking Money Out of Your Investment Account – Full Transcript

**Click here for a full downloadable version of this transcript**

Casey Mullooly: So you need to take some money out of your investment account, let’s talk about it. Welcome back to the Mullooly Asset Show. I’m your host, Casey Mullooly. Happy to be back with you for episode 354.

Just want to get this out of the way upfront. If you need money, you know you’re going to need money in the next one to three years, we like to see that money not at risk in a stock market. Probably better off in a high yield savings account. You can actually get something for it there now. So, just wanted to get that out of the way.

The first thing to consider when you’re pulling money out of your investment account is which type of account is it? We’re going to start with a regular taxable brokerage account. Taking money out of this account is easiest because it doesn’t have a penalty or age requirements attached to it.

Like some tax deferred accounts do like an IRA or 401K, but you want to be careful when you are selling investments to raise the cash to take out of these accounts because you’ll be subject to what’s called capital gains tax. There’s two types of capital gains tax, short term and long-term. Short term is if you held the investments for less than 12 months long-term is if you’ve held them for more than 12 months.

So short-term capital gains tax is going to depend on how much income you have that year. It’s your ordinary income tax rate for that year. So 10, 12, 22, 24, all the way up to 37%. If you sell something with a big gain, you’re going to have to pay tax on that.

So it’s better to have long-term capital gains. Long-term cap gains rates are as low as 0% depending on how much income you have, but probably more like 15%. So that can really make a difference.

Any money you take out of a regular brokerage account, you’re going to get a 1099 for that at the beginning of next year when you’re doing your tax stuff, getting your tax documents together, you definitely want to include that and report whatever income you have from that withdrawal on your taxes for next year.

So what about a retirement account? What about tax deferred accounts? These are your IRAs, 401Ks or pretty much any other workplace retirement plan that you might have. What if you need to take money out of there? Well, think about it this way. That money usually goes in pre-tax. It comes out of your paycheck before you pay tax on it.

So it goes in pre-tax. If you don’t pay tax on the way in, you’re going to have to pay tax on the way out. So again, like the short-term capital gains tax, this is going to be your ordinary income rate for that year. So again, it’s going to depend on how much income you have.

You also need to be concerned about the 10% early withdrawal penalty. If you are not 59 and a half years old and you don’t have a special purpose you’re going to be hit with that 10% penalty.

The special purposes is a topic for another video, but you want to at the very least, know about it and plan for it ahead of time. We’d hate to see you take that money out and then unexpectedly get hit with a 10% penalty.

So, last type of account I want to touch on is the Roth IRA. Again, this can be a great place for intermediate term goals in the three to five year range. The Roth IRA, Tom and I did a good podcast on, if you want the in-depth version, we did that two weeks ago, so I’ll link that up in the show notes.

But on the high level, whatever you contribute to a Roth IRA can be taken out at any point in time and you don’t have to pay tax on that. The gains might be tax-free if you’ve had the account open for five years or more. So that is the Roth IRA.

Look, in an ideal world we know that you would never take money out of your investment account, but life happens and you need to pay for things unexpectedly sometimes.

So at least now you have an idea and you can be prepared for when and if you need to take money out of your investment accounts. So that’s going to do it for this week’s episode. Thanks as always for tuning in. We’ll be back with you next week.



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