tax on mutual fund withdrawal
I was recently disappointed finding out I had to mail the IRS $2000 for income tax 2021 instead of getting a refund, like I usually do. I learned that I withdrew over $14,000 from my Vanguard account in 2021 and it was viewed as income so I had to pay the IRS 2000+ dollars. How can I avoid this happening again when and if I choose to utilize the money I have strived so hard to save? Thank you.
Terry Says
Well, you can start by knowing the rules!!
I don’t know what kind of account you have at Vanguard — or your age.
If it’s a regular investment account and you sell shares at a gain, it will be added to your income, unless it is a long-term gain, which is taxed at a lower rate.
If it was an IRA, and you are under age 59-1/2, then withdrawals are taxed as ordinary income, plus a 10% penalty for withdrawals under age 59-1/2.
If it is a traditional deductible IRA and you are over 59-1/2, then the money withdrawn is added to your income.
If this is a retirement account ask Vanguard what rules apply to you.
