How to Cash Out a Mutual Fund: Steps, Pricing, and Taxes

To cash out a mutual fund, log into your brokerage or fund company account, select the fund, choose how much to sell, and submit the redemption. Orders placed before 4:00 p.m. Eastern get that day’s closing net asset value; orders after that roll to the next business day. The trade settles one business day later, and the cash usually lands in your linked bank account within two to three business days of the sale. The clicks are simple. The fees, cost basis choices, and tax treatment are where the real decisions sit.

What to Decide Before You Sell

You need the fund’s ticker symbol (five letters for mutual funds) and your account number. You also need to decide whether you’re selling a specific dollar amount, a specific number of shares, or the entire position. That choice matters because it determines which tax lots get liquidated.

The redemption form will ask about federal and state tax withholding. You can have taxes withheld from your proceeds or handle them yourself at filing time. If you skip the question or the fund company doesn’t have a valid taxpayer identification number for you, 24% of your proceeds are withheld and sent to the IRS as backup withholding.¹

Larger redemptions trigger extra verification. If your withdrawal exceeds roughly $50,000, or if you’re sending a check to an address that doesn’t match the one on file, most fund companies require a Medallion Signature Guarantee. That’s a special stamp from a bank, credit union, or brokerage that verifies your identity. Banks usually provide it free to existing customers. If you’re not a customer, expect a fee of $10 to $50, and expect to appear in person.

How to Place the Redemption

Most people sell through their online brokerage or fund company portal. Log in, open the fund position, and follow the sell or redeem prompts. You’ll choose a payout method, which is almost always an electronic transfer to a linked bank account. A mailed check is still available but adds several days. Some brokerages charge $12 to $25 for overnight delivery.

If you’d rather not do it online, you can call the fund company and place the order over the phone, or fill out a paper redemption form and mail it to the transfer agent.² Paper is slowest, because the trade doesn’t execute until the transfer agent receives and processes the form. Save the confirmation number you get at submission, whichever route you use.

How Your Shares Get Priced

Mutual funds are priced once a day, not continuously like stocks. The fund calculates its net asset value after the major U.S. exchanges close, typically at 4:00 p.m. Eastern.³ Orders submitted before that cutoff get the same day’s NAV. Orders after 4:00 p.m. get the next business day’s NAV.⁴ You won’t know the exact per-share price when you hit submit.

Weekends and market holidays push the price date forward. A sell order placed at 2:00 p.m. Friday gets Friday’s close. Place it at 6:00 p.m. Friday and you’re waiting for Monday’s close, or Tuesday’s if Monday is a market holiday. The NYSE observes about nine holidays a year, and each one moves the timeline.

When the Cash Reaches Your Bank

Mutual fund trades settle on a T+1 basis, meaning the sale is finalized one business day after the trade date.⁵ Sell Monday, settle Tuesday. That’s when the fund company releases proceeds.

Getting the cash from the brokerage into your bank account adds another one to two business days through ACH. All in, the money usually shows up two to three business days after your sell order.⁶ If you’re timing this to a specific bill or closing date, count backward from that date and add cushion for weekends and holidays.

Fees Deducted From Your Proceeds

Not every fund charges at redemption, but check the prospectus before you sell. The most common charge is a redemption fee, which the SEC caps at 2% of the amount redeemed.⁷ Funds use it to discourage rapid trading, and it usually only applies if you sell within a short window after buying, often 30 to 90 days. If you’ve held for a year or more, redemption fees almost never apply.

Some older share classes, particularly B-shares and C-shares, carry a contingent deferred sales charge instead. This back-end load declines the longer you hold and eventually drops to zero. These share classes have become less common, but if you bought into one years ago, confirm whether the CDSC period has expired before you sell.

A small SEC fee under Section 31 applies to all securities sales. For fiscal year 2026, the rate is $20.60 per million dollars sold.⁸ On a $50,000 redemption, that’s about a dollar.

How the Sale Gets Taxed

If you’re selling in a taxable brokerage account and the fund is worth more than what you paid, the profit is a capital gain. The rate depends on how long you held the shares.

Shares held for one year or less produce short-term capital gains, taxed at ordinary income rates.⁹ For most people that means somewhere between 10% and 37%, depending on total taxable income.

Shares held longer than a year produce long-term capital gains, which get preferential rates. For 2026:

0% on taxable income up to $49,450 (single) or $98,900 (married filing jointly).
15% on income above those thresholds up to $545,500 (single) or $613,700 (joint).
20% on income above the 15% thresholds.

High earners may owe an additional 3.8% net investment income tax on top of the capital gains rate, pushing the effective top rate to 23.8%. That surtax applies if modified adjusted gross income exceeds $200,000 (single) or $250,000 (joint).

Your fund company reports the sale to the IRS on Form 1099-B, showing proceeds, cost basis, and whether the gain is short- or long-term.¹⁰ You’ll get a copy early the next year and use it to fill out Schedule D. If the numbers look wrong, the usual culprit is reinvested dividends that weren’t added to your cost basis, which inflates the reported gain. Check against your own records before filing.

Picking a Cost Basis Method

Cost basis is what you originally paid, and it decides how much of your proceeds count as taxable gain. If you bought all your shares at once, this is easy. If you invested over time through automatic contributions or reinvested dividends, you likely own lots purchased at many different prices, and the calculation method can meaningfully change the tax bill.

The IRS allows three approaches for mutual fund shares:¹¹

First-in, first-out (FIFO). Your oldest shares are treated as the ones sold first. This is the default. When a fund has appreciated over time, FIFO tends to produce larger gains because your cheapest shares go first.
Average cost. Total paid divided by total shares, giving one blended per-share cost. Simplest to calculate, and historically the default many fund companies used for mutual fund accounts.
Specific identification. You pick which lots to sell. Most control, best for choosing high-cost shares to minimize gains or low-cost shares in a lower-income year. You have to identify the specific lots at the time of the trade, not after the fact.

You can change your method going forward, but you generally can’t retroactively change the method for shares already sold. On a large sale where the difference between methods is meaningful, run the numbers before submitting the order.

When the Sale Is a Loss

If the fund lost value, the loss offsets capital gains from other investments. If losses exceed gains, you can deduct up to $3,000 against ordinary income each year and carry the rest forward.

Watch the wash sale rule. If you sell at a loss and buy the same fund, or one substantially identical to it, within 30 days before or after the sale, the IRS disallows the loss.¹² The disallowed amount is added to the cost basis of the replacement shares, so it’s not gone forever, just deferred. To harvest the loss and stay invested, move into a fund that tracks a different index for at least 31 days before returning to the original.

Selling From a 401(k) or IRA

Retirement accounts work differently. Because they’re tax-deferred, there are no capital gains to calculate. The entire withdrawal is taxed as ordinary income in the year you take it.

If you’re under 59½, a 10% early withdrawal penalty generally applies on top of the income tax.¹³ For 401(k) distributions, the plan administrator must withhold 20% for federal taxes before releasing the balance. IRA withdrawals don’t carry that mandatory withholding, but you’ll still owe the tax at filing.

Several exceptions remove the 10% penalty, though income tax still applies. The commonly used ones:¹³

First-time home purchase (IRA only), up to $10,000.
Qualified higher education expenses (IRA only) for you or a dependent.
Substantially equal periodic payments based on life expectancy, from both IRAs and employer plans.
Total and permanent disability, no age requirement.
Unreimbursed medical expenses exceeding 7.5% of adjusted gross income.
Birth or adoption, up to $5,000 per child.
Federally declared disaster, up to $22,000 for qualified individuals with economic loss.

Roth IRAs have separate rules. Contributions come out anytime, tax- and penalty-free. Earnings come out tax- and penalty-free once you’re 59½ and the account has been open at least five years. Pull earnings out earlier and the 10% penalty plus income tax apply to the earnings portion.

If You Inherited the Shares

Inherited mutual fund shares get a stepped-up cost basis: generally the fair market value on the date of death, not the original owner’s purchase price.¹¹ If a parent bought shares for $20,000 that were worth $80,000 at death, your basis is $80,000. Sell for $82,000 and you owe tax on $2,000 of gain.

Inherited shares are also treated as long-term regardless of holding period, so any gain qualifies for long-term rates. One exception: if you gave the property to the decedent within one year before their death, the step-up doesn’t apply, and your basis is the decedent’s adjusted basis.¹¹

If the estate elected an alternate valuation date (six months after death) for estate tax purposes, your basis is the value on that alternate date. This mostly comes up with larger estates, but confirm with the executor which valuation date was used before you sell.

1
Internal Revenue Service. Publication 15 (2026), (Circular E), Employer’s Tax Guide
2
State Street Global Advisors. Mutual Funds Redemption Form
3
U.S. Securities & Exchange Commission. Division of Investment Management – April 2001 Letter to the ICI Regarding Valuation Issues
4
FINRA.org. Mutual Funds
5
U.S. Securities and Exchange Commission. New T+1 Settlement Cycle – What Investors Need To Know: Investor Bulletin
6
FINRA. Understanding Settlement Cycles: What Does T+1 Mean for You?
7
U.S. Securities and Exchange Commission. Mutual Fund Redemption Fees – Final Rule
8
Federal Register. Order Making Fiscal Year 2026 Annual Adjustments to Transaction Fee Rates
9
Internal Revenue Service. Topic no. 409, Capital Gains and Losses
10
Internal Revenue Service. Instructions for Form 1099-B (2026)
11
Internal Revenue Service. Publication 551 (12/2025), Basis of Assets
12
Internal Revenue Service. Case Study 1: Wash Sales
13
Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions