The Money Mustache Community
Learning, Sharing, and Teaching => Investor Alley => Topic started by: Broadway2019 on August 16, 2017, 04:01:05 PM
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I not sure how this works. If I put $25k in VSTAX and withdrawal in 5-7 years will I be taxed? Would it be worth it?
Also do I just open an ira to do this?
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Mutual fund income, and profit from mutual funds when you sell them, are both very very taxable :-)
I suspect (I don't know) Vanguard would make it easy to open an IRA at the same time as you buy a fund such as VTSAX, but you don't want to confuse the two things. VTSAX has nothing to do with taxes: what will change the taxes is whether your stuff is inside or outside an IRA.
You probably want to spend a bit of time reading up on Roth IRAs and regular IRAs.
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VTSAX would be an "Investment Option within the account". The tax treatment when selling would depend on the account type.
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Ok so I guess this would be taxable. Isn't capital gains tax 15%? So if I only net 7% return I would lose money. Right?
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Only the *profit* is subject to the capital gains tax, though. (And of course dividends and distributions, whether reinvested or not, are just plain income.)
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Ok so I guess this would be taxable. Isn't capital gains tax 15%? So if I only net 7% return I would lose money. Right?
No, not at all. You're only taxed on the gains. So if you invested your $25,000 and received a 7% return, you'd have $26,750. But only $1750 of that is your gain and that's the only portion that's taxed. So at 15%, you'd owe $262.50 in taxes.
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Only the *profit* is subject to the capital gains tax, though. (And of course dividends and distributions, whether reinvested or not, are just plain income.)
Dividends are taxed in the year you receive them, but not as income. They're taxed at capital gains rates as well.
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Yeah, what Eric said :-) So you'd make six percent off it rather than seven.
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... or you might lose money, too, if you're taking it back out that quick -- there's no law that says the market's going to be higher 5 to 7 years from now than it is now. It *probably* will be. But you need to be in the market for a long time to have something approaching certainty about gains. At fifteen years, you're almost guaranteed. But if you're going to really *need* that money five years from now, you might not want to be in the stock market at all. A lot of what people say on these boards -- about how stocks always go up and so forth -- only applies to money that you throw into the oven and leave to bake for fifteen or twenty years.
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Paying taxes in a taxable account means you made money. That's a good thing. ;)
Of course use tax advantage accounts where you can, but if you've maxed those out don't feel bad about paying some taxes when you need to use a taxable account.
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IRA's are a type of account.
VSTAX is a type of fund.
First you establish an account based on whatever needs/parameters.
Then you purchase stocks/bonds/funds within that account.
There are limits to how much you can put into an IRA per year depending on the type of IRA and your age.
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Only the *profit* is subject to the capital gains tax, though. (And of course dividends and distributions, whether reinvested or not, are just plain income.)
Dividends are taxed in the year you receive them, but not as income. They're taxed at capital gains rates as well.
Only qualified dividends are taxed at capital gains rates, non-qualified dividends from things like REITs and foreign companies are taxes as normal income.
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Speaking of REITs, that's probably what I personally would do with 25k that I wanted to pull out intact five years from now. O or HCN or VTR.