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If I have say a 401k account, and say I sell some of my stocks in there, but I don't pull the money out of my account, is the only tax involved the capital gains tax? Or will I pay my income tax on it and the 10% extra tax for people before 65 (I am younger than 65)?

yoozer8
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graphtheory123
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    The 10% extra tax (aka penalty) on distributions from retirement plans (unless certain exceptions apply) is below age 59.5 not 65. (Age 65 is when you used to get an additional personal exemption, and now after TCJA instead your standard deduction is increased.) – dave_thompson_085 Dec 22 '21 at 03:00

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No you will not pay any tax. Transactions within a 401(k) are not taxable events. You are only taxed when you withdraw funds, and the amount of money that is withdrawn is treated as "regular" income. The amount of gains/losses/dividends/etc. that occur within the account are irrelevant.

D Stanley
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  • Thank you for your response. And to clarify, withdrawing funds basically means transferring your funds to your bank account, right? – graphtheory123 Dec 20 '21 at 19:31
  • Correct, or rolling them to a Roth IRA. Rolling to a Traditional IRA is not taxable since it's also a "tax-deferred" retirement account. – D Stanley Dec 20 '21 at 19:35
  • Note that once a year you can also do an indirect rollover, but it's not preferred. – obscurans Dec 21 '21 at 04:09
  • Rollover IRAs in case of job loss of employment is also not taxed. – JonH Dec 21 '21 at 22:29
  • @JonH Are you certain? I know that penalties can be waived in some cases (like unemployment) but I've never heard of taxes being waived in any situation. – D Stanley Dec 21 '21 at 22:48
  • Yes i quit my job of 20 years and had a 401k through fidelity. If i moved it to a regular roth ira i was told this was a taxable event. Fidelity gave me another option move to a Rollover IRA there was no taxable event, no charges and absolutely no fees. In fact the funds I could invest in were exactly the same funds had I chosen a tradational IRA or a regular RothIRA. You can go here or check online. https://www.fidelity.com/learning-center/personal-finance/retirement/options-for-your-old-401k – JonH Dec 21 '21 at 22:52
  • See also this https://money.stackexchange.com/a/118039/25878 – JonH Dec 21 '21 at 22:58
  • Sorry the fidelity link is this one. https://www.fidelity.com/retirement-ira/401k-rollover-ira. Specifically the key points section on “tax benefits”. – JonH Dec 21 '21 at 23:02
  • @graphtheory123: or if you have them mail you a check (which you don't promptly redeposit in another qualified plan or IRA), or if you have them pay your credit card bill, or buy you a car, or anything else. If you take the money out of the (nonRoth) 401k to anywhere other than another plan or IRA, it's a taxable distribution. – dave_thompson_085 Dec 22 '21 at 03:04
  • @JonH you are comparing a Roth IRA to a traditional IRA. But while doing a change from 401(k) to IRA If you go from traditional to Roth you will pay a tax; but if you don't change the flavor of the money you will not have to pay any tax. – mhoran_psprep Dec 22 '21 at 11:16
  • @JonH Okay so in that case a "Rollover IRA" is just a "Traditional" (pre-tax) IRA that is funded by a rollover. Which is not a taxable event, you are correct, but not because of the job loss. It's not taxable in any case. – D Stanley Dec 22 '21 at 15:11
  • @DStanley right but a lot of people use that terminology and I wanted to make it known in case OP runs into that. I didn’t mean job loss in the sense that you are fired or terminated I meant in any circumstance such as finding a new opportunity. – JonH Dec 22 '21 at 21:55
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If I have say a 401k account, and say I sell some of my stocks in there, but I don't pull the money out of my account, is the only tax involved the capital gains tax? Or will I pay my income tax on it and the 10% extra tax for people before 65 (I am younger than 65)?

First of all the key age if it applied it would be 59.5 not 65.

Selling things within the 401(k) is not a taxable event. It also isn't a taxable event if interest or dividends are earned withing the 401(k).

When you transfer money outside of the 401(k) you might have a taxable event.

Rolling traditional 401(k) money to a traditional IRA or another tradition 401(k) doesn't trigger taxes. Moving Roth 401(k) to Roth IRA doesn't trigger taxes.

So what does trigger taxes?: (this list isn't exhaustive)

  • Going from Traditional 401(k) to Roth IRA. That is because you are changing the flavor of the money: Traditional to Roth.
  • Going from Traditional 401(k) to a non-retirement account. Again a change in flavor.

Depending on your age there can also be penalties. The IRS does have a chart showing what can be rolled over and to where.

mhoran_psprep
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