by **FinancialDave** » Tue Jan 29, 2013 1:07 am

It depends on the original cost basis of the investment and the gain that is made on the sale.

The cost basis of the account is essentially the total dollars put into the account + any dividends, interest, or capital gains distributions paid to cash in the account or reinvested into the account (which should have shown up on your yearly statements and or 1099-DIV, or 1099-INT forms every year). Once you total all that up you would subtract that "cost" total from what I would call the total liquidation cost. If this number is positive, then that is your tax liability - barring of course any other distributions from the account.

If you have had more than one fund over the years it could get a little more difficult, but the idea is the same, each fund you sell you need to calculate the cost basis and subtract that from the sale price to come up with your gain on the sale. I am sure there may be many more elegant explanations elsewhere on the forum as well, but that is the general idea.

There may also be fees to close the account which you should check on with the company holding the funds.

If the account was gifted to you with the funds in it, then that is another whole "can of worms" in that the basis has to be determined from the giver.

Hopefully this is not some type of insurance product like a variable annuity, as there could be other fees involved.

fd

I love simulated data. It turns the impossible into the possible! Remember - Past performance is great for buying a dishwasher, but not so great for picking stocks or actively managed mutual funds!