Selling Taxable Investments

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Selling Taxable Investments

Postby fivel » Thu Apr 04, 2013 7:19 pm

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Last edited by fivel on Sat Apr 06, 2013 12:57 pm, edited 1 time in total.
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Re: Selling Taxable Investments

Postby grabiner » Thu Apr 04, 2013 10:39 pm

I would suggest selling the taxable investment as needed. The tax bill shouldn't be very high, since most of your capital gain is long-term. In addition, if your ticker was correct (VGSTX), the STAR fund is not good for a taxable account, as it generates a lot of taxable capital gains; getting this out of your taxable account will save you in taxes in the long run.

While you can withdraw your Roth contributions (and, if you have have the Roth for five years, $10,000 of earnings as well for a home purchase), you'll lose the benefit of the tax-deferred savings. If you keep your Roth intact, you can withdraw your contributions in the future in an emergency, and if you don't have an emergency, you can contribute more to your Roth IRA and 401(k) so that all your future savings will be tax-deferred. If you withdraw from the Roth for the down payment and leave the taxable account intact, you will be paying taxes that you don't need to pay.

And if you do eventually find yourself maxing out your retirement accounts, you can then start taxable savings in a fund such as Total Stock Market or Total International which is better for your taxable account.
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Re: Selling Taxable Investments

Postby fundseeker » Thu Apr 04, 2013 11:16 pm

If you are really concerned with the taxes, you could cash in some this tax year (maybe in December for 2013) and then more in the next tax year (2014), just to spread out the damage.
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Re: Selling Taxable Investments

Postby fivel » Fri Apr 05, 2013 6:38 am

Thanks for the input so far.

Should I sell the taxable investment and proportionately increase my 401k contributions? Then withdraw from my Roth IRA as needed for the home purchase? Or is there not much to be gained this way? I'm having trouble seeing the whole picture.
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Re: Selling Taxable Investments

Postby grabiner » Fri Apr 05, 2013 9:17 pm

fivel wrote:Should I sell the taxable investment and proportionately increase my 401k contributions? Then withdraw from my Roth IRA as needed for the home purchase? Or is there not much to be gained this way? I'm having trouble seeing the whole picture.


I would suggest selling the taxable investment for your down payment, and not increasing your 401(k) contributions this year. Once you know how much you have left after buying the home, you can increase your 401(k) contributions to make up for what you didn't contribute this year.

The problem with your suggested strategy is that you would have to withdraw from your Roth IRA, and this would cost you the opportunity to withdraw from the Roth IRA tax-free in the future. If you buy your house without touching the Roth, and then you discover that you need a new car or a new roof, you can withdraw from the Roth tax-free rather than either taking out a loan or paying a penalty on withdrawals from retirement accounts.
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