Author Topic: Rules of Vanguard Non Retirement  (Read 653 times)

gsd802

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Rules of Vanguard Non Retirement
« on: March 12, 2020, 03:31:05 AM »
Hello,

I was wondering if there was penalties of selling stock and withdrawing cash to put in your pocket with Vanguards non retirement brokerage account. I also have a ROTH and Traditional with are maxed for the year.

Reason being I want to take advantage of current market by putting more into my non retirement account which is in VTSAX but on the other hand donít want to not have enough money for down payment of house when the time comes.

When that time does come, can I withdrawal from non retirement account without penalty whether it be for paying bills or a down payment on house? Can you withdraw what you contributed as well as what you earned in interest/higher price in stock at time of selling ?

Thanks

dhc

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Re: Rules of Vanguard Non Retirement
« Reply #1 on: March 12, 2020, 06:29:12 AM »
Yes, that's the whole idea of a taxable account. Note the taxable part, though - you'll have to pay capital gains tax on any gains you realize while selling. And depending on the timeframe before you need your down payment, be careful - with the reward of the stock market comes risk, and you shouldn't invest money you can't afford to lose short term.

terran

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Re: Rules of Vanguard Non Retirement
« Reply #2 on: March 12, 2020, 07:27:17 AM »
On the other hand, you may well have investments in your taxable account with losses it which case you can sell those to put in your retirement accounts, which means not only will you get the benefit of moving "more" (in terms of number of shares) into your retirement accounts, but you'll also get to deduct the losses from your taxes next year. Losses will first offset any gains, and after the all gains are offset, up to $3000 of losses can offset ordinary income, which is even better since ordinary income is taxed at higher rates than long term gains.

If you have some losses, but selling the investments with losses won't raise as much as you want to move to retirement accounts then you could consider also selling some of the investments with gains in the right proportion so all the gains are offset with losses. This way you don't get an additional deduction, but at least you won't owe anything.

If all you have are investments with gains, then you might still want to sell some to move to retirement accounts, just realize that you'll owe taxes at your marginal capital gains rates. If you're in a low enough bracket this may be 0% although states often tax long term capital gains the same as regular income. Sell investments you've held more than one year so they're long term capital gains and sell the investments with the smallest percentage gains.

Make sure your taxable account is set to specific identification cost basis tracking so that you can sell specific tax lots to sell, otherwise you won't be able to be this precise with whether you're realizing gains or losses.

gsd802

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Re: Rules of Vanguard Non Retirement
« Reply #3 on: March 13, 2020, 10:04:07 AM »
Yes, that's the whole idea of a taxable account. Note the taxable part, though - you'll have to pay capital gains tax on any gains you realize while selling. And depending on the timeframe before you need your down payment, be careful - with the reward of the stock market comes risk, and you shouldn't invest money you can't afford to lose short term.

Thanks for this.  I think I understand now  its calculated now.  So I came up with some hypothetical numbers.  Does this make sense?

Buy 181 shares VTSAX at $50/share. =$9,955.

In one year plus time, they are at $90/share.

Sell 181 shares, now gross $16,290.

Gross Income $6,335. 

15% capital gains tax, 6% sales tax.

6335 x .21 = $1,330.35 in taxes.

16290 - 1330.35 = $14,959.65 left over.

$14,959 - $9955 invested  = $5,004.65 net income.

Thats a 50.27% return on investment.



On the other hand, you may well have investments in your taxable account with losses it which case you can sell those to put in your retirement accounts, which means not only will you get the benefit of moving "more" (in terms of number of shares) into your retirement accounts, but you'll also get to deduct the losses from your taxes next year. Losses will first offset any gains, and after the all gains are offset, up to $3000 of losses can offset ordinary income, which is even better since ordinary income is taxed at higher rates than long term gains.

If you have some losses, but selling the investments with losses won't raise as much as you want to move to retirement accounts then you could consider also selling some of the investments with gains in the right proportion so all the gains are offset with losses. This way you don't get an additional deduction, but at least you won't owe anything.

If all you have are investments with gains, then you might still want to sell some to move to retirement accounts, just realize that you'll owe taxes at your marginal capital gains rates. If you're in a low enough bracket this may be 0% although states often tax long term capital gains the same as regular income. Sell investments you've held more than one year so they're long term capital gains and sell the investments with the smallest percentage gains.

Make sure your taxable account is set to specific identification cost basis tracking so that you can sell specific tax lots to sell, otherwise you won't be able to be this precise with whether you're realizing gains or losses.

Thanks for this as well.  This is definitely over my knowledge base but will look more into this!

secondcor521

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Re: Rules of Vanguard Non Retirement
« Reply #4 on: March 13, 2020, 02:43:40 PM »
Yes, that's the whole idea of a taxable account. Note the taxable part, though - you'll have to pay capital gains tax on any gains you realize while selling. And depending on the timeframe before you need your down payment, be careful - with the reward of the stock market comes risk, and you shouldn't invest money you can't afford to lose short term.

Thanks for this.  I think I understand now  its calculated now.  So I came up with some hypothetical numbers.  Does this make sense?

Buy 181 shares VTSAX at $50/share. =$9,955.

In one year plus time, they are at $90/share.

Sell 181 shares, now gross $16,290.

Gross Income $6,335. 

15% capital gains tax, 6% sales tax.

6335 x .21 = $1,330.35 in taxes.

16290 - 1330.35 = $14,959.65 left over.

$14,959 - $9955 invested  = $5,004.65 net income.

Thats a 50.27% return on investment.


Approximately correct.  A few things:

1.  VTSAX usually doesn't go up that much in a year.  Although these days, who knows.

2.  There is no 6% sales tax due when selling investments at a gain.  You may have state income tax due on that amount, though, and 6% is a reasonable approximation of state income taxes that might be due.

3.  If your income is low enough, you might be in the 0% capital gains tax bracket, so you might just owe state income taxes on the gain.

dhc

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Re: Rules of Vanguard Non Retirement
« Reply #5 on: March 15, 2020, 02:37:50 PM »
Yes, that's the whole idea of a taxable account. Note the taxable part, though - you'll have to pay capital gains tax on any gains you realize while selling. And depending on the timeframe before you need your down payment, be careful - with the reward of the stock market comes risk, and you shouldn't invest money you can't afford to lose short term.

Thanks for this.  I think I understand now  its calculated now.  So I came up with some hypothetical numbers.  Does this make sense?

Buy 181 shares VTSAX at $50/share. =$9,955.

In one year plus time, they are at $90/share.

Sell 181 shares, now gross $16,290.

Gross Income $6,335. 

15% capital gains tax, 6% sales tax.

6335 x .21 = $1,330.35 in taxes.

16290 - 1330.35 = $14,959.65 left over.

$14,959 - $9955 invested  = $5,004.65 net income.

Thats a 50.27% return on investment.


Approximately correct.  A few things:

1.  VTSAX usually doesn't go up that much in a year.  Although these days, who knows.

2.  There is no 6% sales tax due when selling investments at a gain.  You may have state income tax due on that amount, though, and 6% is a reasonable approximation of state income taxes that might be due.

3.  If your income is low enough, you might be in the 0% capital gains tax bracket, so you might just owe state income taxes on the gain.


And here's why it's a bad idea if you need this short term: the following scenario is also possible:



Buy 181 shares VTSAX at $50/share. =$9,955.

In one year plus time, they are at $40/share.

Sell 181 shares, now gross $7240.

Gross loss: $1810.