@KAM73 wrote:
Got it, thank you. One more question...if I take money out of this post-tax account (that I have paid taxes on the dividends all along), is whatever amount I take out taxable? It feels like it shouldn't be since taxes have been paid all along, but I know not to assume anything when it comes to taxes. 🙂 I'm just trying to figure out the best option to do some needed home repairs. Thanks!
Your broker will have to advise you. You can also look at your account statement for "unrealized gains." That's what you will pay tax on.
Your broker account invests in stocks or mutual funds. Those instruments may pay dividends or interest. They also increase in value (share price appreciation). Dividends may be taxable or non-taxable. Sometimes dividends are not taxable because they are reinvested in new shares.
Suppose you invest $10,000. At the end of the year, the account is worth $11,000, which is comprised of $200 of dividends, $50 of interest, and $750 of price appreciation. You pay tax on the dividends and interest but not the price appreciation, and your cost basis in the account is increased to $10,250. The $750 increase in value that you don't pay tax on is your unrealized gains. It's not taxable until you actually realize the gains (make them real) by selling the stock. Unrealized gains aren't real because share prices sometimes go down instead of up. Gains or losses become real when you sell them at whatever price.
Then at the end of the second year, the account is worth $12,000. You pay tax on $400 of dividends and $100 of interest. In addition, you have a taxable capital gain of $100, because one of your mutual funds sold some stock that had increased in value. Your cost basis is now $10,850 and you have unrealized gains of $1,150.
If you then sell everything and cash out, you will pay capital gains tax on the realized gain of $1,150. But you don't pay tax on the amount originally invested, and you don't pay tax on the increase in value that was already taxed.
Your broker keeps track of all this for you.
In addition, if you have several investments, and some have gained value and others have lost value, you can choose to only sell the investments that lost value (which will give you a deductible loss, up to certain limits). Or, if you sold one investment with a gain and another investment with a loss, the gain and loss would cancel each other out. This all depends on what you actually invested in, and your broker should be able to advise you.
