Taxable Account Withdrawal Ability

[REatc]

Can you withdrawal contributions to a taxable account without any stipulations at any time?
I’m trying to think about the future and my desire to pay off my mortgage. So hypothetically: I have a 200k mortgage balance, 250k taxable account balance with 200k contributions and 50k gains. Can I withdraw the 200k contribution balance without any strings attached and keep the 50k gains balance?

I’m thinking if I can, then that is the best option for now to give myself options on whether or not to pay off my mortgage. I’m sure once I have the 250k taxable balance I might have a different thought by then tho.

[ATtiny85]

In general, no. But what exactly are the investments?

[REatc]

All VTSAX

[FIPurpose]

All VTSAX

Doesn't matter, you can't do your accounting that way. You can either do your accounting First-in, first-out or average your cost-basis.

[ATtiny85]

Yep, you can’t separate out the gains from the basis on a sale of a share of VTSAX. Or almost any other normal investment, but good to know exactly what you hold.

Depending on how much and for how long, and what happens in the next years, an aggressive tax loss harvesting plan might be able to decrease the future tax hit.

[SweetTPi]

The basis ("contributions") of taxable accounts is recorded individually for each stock, and when you sell you sell the entire stock, including the taxable gains.  Selling a partial share just gets the gains split between the two parts, so there are still taxable gains associated with the sale.  EG- if you sell 1/2 of a share that had doubled in value, what you sell is half the basis and half the gains.  For taxable accounts one don't get to leave the cap gains behind in the account to avoid the tax hit, alas.

Depending on how much and for how long, and what happens in the next years, an aggressive tax loss harvesting plan might be able to decrease the future tax hit.

Tax gain harvesting can also be done to slowly raise the investment basis over time.  Depending on your current taxable income, those gains could be taxed at 0%, and it doesn't have a bunch of rules to follow like tax loss harvesting.  (Though be aware that brokerages sometimes have rules around trading frequency.)

Doesn't matter, you can't do your accounting that way. You can either do your accounting First-in, first-out or average your cost-basis.

Shares can also be sold via specific ID, to pick and chose the shares that have capital gains that are right for whatever strategy is being used.

[FireLane]

As others have said, the reason this doesn't work is that market growth over time is reflected in the price of every individual share. If you buy a share of VTSAX at $20, and it's worth $30 when you sell it, you have $10 of capital gains you get taxed on. There's no way to avoid it.

Now, if the market is down when you sell, and you sell a share for less than you bought it for, you can claim the difference on your taxes as a capital loss that you can use to cancel out capital gains. If you don't have any gains that year, you can even carry over a loss into subsequent years.

The interesting part is that you can sell a share at a loss, use the proceeds to re-buy a share of something similar-but-not-identical - say, VTWAX instead of VTSAX - and end up with essentially the same holdings while netting a tax credit. That's called tax-loss harvesting. (However, note this doesn't work if you sell and re-buy the exact same thing. That's a wash sale and the IRS will rap your knuckles if you try.)

[MDM]

...250k taxable account balance with 200k contributions and 50k gains. Can I withdraw the 200k contribution balance without any strings attached and keep the 50k gains balance?

For simplicity, let's assume the $200K was invested as a lump sum.  In that case, the taxable amount of any withdrawal (W) will be W * 50/250.  If we further assume you will be in the 15% federal tax bracket for long term capital gains, and no state income tax, the tax due will be W * 50/250 * 15% = W * 3%.  To have $200K available after tax, you would withdraw $200K / (1 - 3%) = $206,186, pay $6,186 in tax, leaving $200K.

Other assumptions will lead to different results, but that might give you some idea of what could happen.

[REatc]

Awesome. Thank y’all for clearing that up. I figured it couldn’t be that simple, and some sort of accounting would be necessary.

[lutorm]

You can keep track of individual share lots and sell the ones that have the least gain, too. That way you minimize the cap gains taxes you pay now.

[Ron Scott]

A recommendation?

https://www.amazon.com/Bogleheads-Guide-Investing-Taylor-Larimore-ebook/dp/B00JUV01RW/ref=tmm_kin_swatch_0?_encoding=UTF8&qid=&sr=