You can withdraw money from an investment account at any time, but what it costs you depends on the account type, your age, and how long you’ve held the investments you sell to raise the cash. A regular taxable brokerage account has no age rules and no penalties, just capital gains tax on any profit. A traditional 401(k) or IRA adds ordinary income tax on the full amount plus a 10% penalty if you’re under 59½. A Roth IRA sits in between: your contributions come out freely, but earnings have their own rules. The withdrawal itself is easy. The tax bill is where the real money goes.
You Have to Sell Something First
Your account balance is the market value of the stocks, bonds, and funds you own, not a cash reserve waiting to be moved. Before any money can leave, you have to sell holdings to convert them into cash.
A market order sells right away at whatever price buyers are offering. A limit order sets a floor price you’re willing to accept, which protects you in a volatile session but risks the order never filling. Once the trade goes through, the proceeds sit as cash in the account until settlement completes.
Watch for redemption fees on mutual funds. Many funds charge a fee if you sell within a short holding window, often 30 to 90 days after purchase. The SEC caps those fees at 2% of the redemption amount. Check the fund’s prospectus before you place the order if you bought recently.
Taxable Brokerage Accounts
A standard taxable brokerage account is the most flexible. No age limit, no penalty, no waiting period beyond settlement. The cost is capital gains tax on every profitable sale.
Short-Term vs. Long-Term Gains
How long you owned the investment decides the rate. Held one year or less: the profit is a short-term capital gain, taxed at your ordinary income rate. Held more than one year: it qualifies for the lower long-term capital gains rates of 0%, 15%, or 20%. For 2026, a single filer pays 0% on taxable income up to $49,450 and doesn’t hit the 20% rate until income tops $545,500. Married couples filing jointly get the 0% rate up to $98,900 and reach 20% above $613,700.1Internal Revenue Service. Revenue Procedure 2025-32
The gap between short-term and long-term rates is large. Holding an investment one extra day past the one-year mark can meaningfully cut your tax bill.
The 3.8% Surtax on Higher Incomes
Net investment income tax adds 3.8% on top of capital gains once modified adjusted gross income exceeds $200,000 (single) or $250,000 (married filing jointly).2Internal Revenue Service. Topic No. 559, Net Investment Income Tax Those thresholds don’t adjust for inflation, so more taxpayers fall under them each year. Combined with the 20% long-term rate, the true federal ceiling on long-term gains is 23.8%. Most states also tax capital gains as ordinary income, so add that to your estimate before you sell.
Using Losses to Offset Gains
Realized losses can offset realized gains and reduce the tax bill. But the IRS disallows the loss if you buy the same or a substantially identical security within 30 days before or after the sale.3Internal Revenue Service. Wash Sales The disallowed amount gets added to the cost basis of the replacement shares, so it isn’t lost forever, but it won’t help on this year’s return.
Traditional 401(k) and IRA Withdrawals
Money in a traditional 401(k) or IRA went in before tax. The IRS deferred its cut, and the cut comes due on withdrawal. Every dollar you take out counts as ordinary income at your current federal rate.
Withdraw before age 59½ and the IRS adds a 10% penalty on top.4Internal Revenue Service. What if I Withdraw Money From My IRA? On a $20,000 early withdrawal that’s $2,000 in penalty alone, before income tax. Between the two, early withdrawals from traditional accounts routinely lose 30% to 40% of the amount pulled.
For 401(k) distributions that aren’t rolled directly into another retirement account, the plan administrator must withhold 20% for federal taxes off the top.5Office of the Law Revision Counsel. 26 USC 3405 You avoid the mandatory withholding by requesting a direct rollover to an IRA or another eligible plan instead of taking the cash. If you do take the cash, the 20% counts as a credit at filing time, but it reduces what actually lands in your bank.
Roth IRA Withdrawals
Roth contributions were made with money you’d already paid tax on, so the rules are looser. You can withdraw your original contributions at any age, at any time, with no tax and no penalty.6Internal Revenue Service. Roth IRAs Put in $40,000 over the years, watch it grow to $55,000, and that first $40,000 is yours whenever you want it.
The $15,000 of earnings is the layer with restrictions. To pull earnings out tax-free and penalty-free, you need to be at least 59½ and to have had a Roth IRA open for at least five tax years. The five-year clock starts January 1 of the tax year of your first contribution, not the actual contribution date. Fund a Roth in April 2023 for the 2022 tax year, and the clock started January 1, 2022.
Earnings withdrawn before you meet both conditions are generally hit with income tax and the 10% penalty, though the same exceptions listed below apply, including a $10,000 lifetime allowance for first-time home purchases.7Internal Revenue Service. Topic No. 557, Additional Tax on Early Distributions From Traditional and Roth IRAs When you take a distribution, the IRS treats contributions as coming out first, then conversions, then earnings. That ordering means you don’t touch the taxable earnings layer until everything else is drained.
Ways Around the 10% Early Withdrawal Penalty
The 10% penalty has a long list of carve-outs. You’ll still owe ordinary income tax on traditional account withdrawals, but the extra 10% goes away when one of these applies:8Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions
- Total and permanent disability.
- Unreimbursed medical expenses above 7.5% of your adjusted gross income.
- Health insurance premiums while unemployed, if you received unemployment compensation for at least 12 weeks.
- First-time home purchase, up to a $10,000 lifetime limit from an IRA.
- Qualified higher education expenses paid from an IRA.
- Substantially equal periodic payments taken at least annually under one of three IRS-approved calculation methods. Once started, you must continue for five years or until 59½, whichever is later.9Internal Revenue Service. Substantially Equal Periodic Payments
- Separation from service in or after the year you turn 55 (50 for public safety employees), for 401(k) distributions from that employer’s plan. This does not apply to IRAs.
- Federally declared disaster, up to $22,000 per disaster.
- Terminal illness certified by a physician.
- Birth or adoption, up to $5,000 per child within one year.
- Domestic abuse victim distributions, the lesser of $10,000 or 50% of the vested balance, for distributions after December 31, 2023.
- Emergency personal expense, one distribution per calendar year up to $1,000, repayable within three years.
401(k) plans also allow hardship withdrawals for specific financial emergencies such as medical bills, preventing eviction or foreclosure, tuition, and funeral costs.10Internal Revenue Service. Retirement Plans FAQs Regarding Hardship Distributions A hardship withdrawal doesn’t have to be repaid the way a 401(k) loan does, but it doesn’t automatically waive the 10% penalty. You still have to fit one of the exceptions above to escape that.
Required Withdrawals After Age 73
At some point the IRS stops letting you keep money growing tax-deferred and makes you take it out. Starting at age 73, required minimum distributions apply to traditional IRAs, SEP IRAs, SIMPLE IRAs, 401(k)s, and most other tax-deferred retirement accounts.11Internal Revenue Service. Retirement Topics – Required Minimum Distributions (RMDs) Roth IRAs are exempt during the original owner’s lifetime.
Your first RMD is due by April 1 of the year after you turn 73. Every one after that is due by December 31. Delaying the first payment to April means taking two RMDs in the same calendar year, which can push you into a higher bracket. The annual amount comes from dividing your December 31 prior-year balance by a life expectancy factor from IRS tables.
Skip an RMD and the IRS charges a 25% excise tax on what you should have withdrawn. The penalty drops to 10% if you fix the shortfall within two years.11Internal Revenue Service. Retirement Topics – Required Minimum Distributions (RMDs) With multiple IRAs, you calculate each RMD separately but can pull the total from any one of them. That flexibility does not extend to 401(k) plans; each 401(k) has to satisfy its own RMD.12Internal Revenue Service. RMD Comparison Chart
Inherited Accounts Follow Different Rules
If the account you’re withdrawing from was inherited, none of the standard timing rules above are the whole story. Surviving spouses can roll an inherited IRA into their own and follow the normal rules based on their own age.13Internal Revenue Service. Retirement Topics – Beneficiary Most non-spouse beneficiaries who inherited after 2019 must empty the account by December 31 of the year containing the 10th anniversary of the owner’s death, and may owe annual distributions during those 10 years if the owner had already started RMDs.14Internal Revenue Service. Publication 590-B Spreading withdrawals across the decade usually beats waiting until year 10 and pulling one large taxable lump.
How Long Until the Cash Hits Your Bank
Selling doesn’t put cash in your bank the same day. Federal rules require a settlement period. Since May 2024, the standard settlement cycle for most securities is T+1, one business day after the trade.15U.S. Securities and Exchange Commission. Shortening the Securities Transaction Settlement Cycle Sell Monday, cash settles Tuesday. Sell Friday, it settles Monday, or Tuesday if Monday is a federal holiday.
Your brokerage may reflect the sale in your total balance immediately, but you can’t move that cash out until it settles. Trying to transfer earlier usually returns an insufficient-funds error.
Once settled, an ACH transfer to a linked bank account takes one to three business days. A wire arrives same-day or next-day, typically for a $25 to $50 fee. A mailed check is slowest. Brokerages often set transfer limits, especially for newer accounts, and large or unusual transfers may require an extra verification step or a callback before they go through.16FINRA. Regulatory Notice 21-18 – Cybersecurity Practices If you need the money by a specific date, sell at least two business days ahead of when you need it in your bank.
An Alternative: Borrow Against the Portfolio
If your brokerage account is margin-eligible, you can borrow against the portfolio through a margin loan or securities-based line of credit instead of selling. That gives you immediate cash without triggering capital gains taxes or waiting on settlement. You pay interest on the balance and face a margin call if the portfolio’s value drops far enough. For a short-term need you plan to repay quickly, it can be cheaper than a taxable sale. For long-term spending, selling and paying the tax is usually the cleaner path.