GuideStone — Are there penalties for withdrawing from my investment account? (2024)

FAQs

Is there a penalty for withdrawing from investments? ›

Early withdrawal penalties are usually charged against accounts that rely on some designation of fixed maturity, like the expiration of a certain time period. Individual retirement accounts (IRAs), 401(k)s and certificates of deposit are the most common investments that carry early withdrawal penalties.

There are no tax "penalties" for withdrawing money from an investment account. This is because investment accounts do not receive the same tax-sheltered treatment as retirement accounts like an IRA or a 403(b). There are also no age restrictions on when you can withdraw from your investment account.

In many cases, you won't owe taxes on earnings until you take the money out of the account—or, depending on the type of account, ever. But for general investing accounts, taxes are due at the time you earn the money.

A brokerage account is a standard nonretirement investing account. You can hold mutual funds, ETFs (exchange-traded funds), stocks, bonds, and more, which can generate returns and help you grow your savings. Use it to save for any goal, and take your money out anytime with no early withdrawal penalty.

The 4% rule is a strategy that says you should withdraw 4% of your retirement savings in your first year of retirement. In subsequent years, tack on an additional 2% to adjust for inflation. For example, if you have $1 million saved under this strategy, you would withdraw $40,000 during your first year in retirement.

Financial advisors generally say selling investments should be avoided if possible as it not only means that your money will stop growing but also that you may owe taxes. Remember, your investments are important for long-term financial goals.

Ways to Avoid Taxes

Instead, they are loans that let you borrow money from your 401(k) and pay it back later on. The 401(k) rollover and the 401(k) loan are the two methods that you can use. Both have significant limitations, but they can potentially let you tap your 401(k) without paying taxes.

At maturity close-out, which means your investment has matured and you've reached the end of the investment period. All funds are available at this time and you won't be charged penalties for withdrawals. It's possible to redeem your money before the investment period ends, however, you will be charged a penalty fee.

One frequently used rule of thumb for retirement spending is known as the 4% rule. It's relatively simple: You add up all of your investments, and withdraw 4% of that total during your first year of retirement.

You can take distributions from your IRA (including your SEP-IRA or SIMPLE-IRA) at any time. There is no need to show a hardship to take a distribution. However, your distribution will be includible in your taxable income and it may be subject to a 10% additional tax if you're under age 59 1/2.

How do I avoid paying taxes on my investment account? ›

Investing in retirement accounts eliminates capital gains taxes on your portfolio. You can buy and sell stocks, bonds and other assets without triggering capital gains taxes. Withdrawals from Traditional IRA, 401(k) and similar accounts may lead to ordinary income taxes.

Most investment income is taxable. But your exact tax rate will depend on several factors, including your tax bracket, the type of investment, and (with capital assets like stocks or property) how long you own them before selling.

You'll add the withdrawal to your taxable income when preparing your tax return, and then you must pay the resulting taxes, which will depend on your tax bracket.

You can take money out of a brokerage account at any time and for any reason—just like you could with a regular bank account—without paying an early withdrawal penalty.

Proceeds from trades are available for withdrawal upon settlement of the trade (typically 1-2 business days, depending upon the type of security). There is a seven (7) business day hold on checks and bank transfer deposits. Cash from wires are available for withdrawal the following business day.

At maturity close-out, which means your investment has matured and you've reached the end of the investment period. All funds are available at this time and you won't be charged penalties for withdrawals. It's possible to redeem your money before the investment period ends, however, you will be charged a penalty fee.

Capital gains, dividends, and interest income

Most investment income is taxable. But your exact tax rate will depend on several factors, including your tax bracket, the type of investment, and (with capital assets like stocks or property) how long you own them before selling.