Withdrawing stock

Forum|Forum|2 years ago
May 29, 2024
3 replies
47 views

I have stock managed by UBS Wealth Management. I need to cash out between $30,000 - $35,000. Do I take out for Federal (20%) and State (10%) for taxes or more? My goal is not to pay at the end of the year.

Ask the Experts - W-4 II - May 2024

mtufaro

Level 7

Thank you for your question. If your goal is to not owe taxes at the end of the year, tax withholding on sources of income other than a W-2 is a great idea.

Stock generally has a basis, which is what you paid to acquire the stock in the first place, so if this is stock in a brokerage account then the full amount withdrawn would not be taxable. If so it may also be a long-term capital gain that could be taxed at 0%, 15% or 20%.

If this is stock in a pre-tax retirement account and this is a distribution then the 20% tax rate withholding may be appropriate. If you are under the age of 59.5 then you also want to account for the 10% penalty for an early distribution. Not all states tax (Illinois, Iowa, Mississippi and Pennsylvania) distributions from retirement accounts, so state withholding may not be necessary . Also only a few states (California, New Jersey and New York) and DC have marginal tax brackets exceeding 10%, so this may be too high.

Ultimately you may want to complete a more refined calculation by using these Turbo Tax resources:

TurboTax's W-4 Calculator

TurboTax's Tax Caster tax calculator

Be well and safe @Bissawo

Bissawo Author

Level 2

Thank you. I live in California. I am over 60 years old. I believe my singular stock holding is considered capital gains. I stopped depositing money into the account over 2 years ago but have been getting quarterly dividends. Should I have them take out 20% federal and 10% tax?

mtufaro

Level 7

That is helpful. So in most instances, taxes are not withheld from capital gains, distributions, or other income generated from such accounts. However, you may want to withhold more elsewhere or pay quarterly estimated taxes to help cover any tax liabilities produced by these assets. I would check with your brokerage first, as this is just the general rule.

If taxes cannot be withheld, which I assume is the case, you can make estimated tax payments or withhold more, but only to the extent that the amount withdrawn is a capital gain. Please check with your brokerage on what your basis in the investment is as well.