What happens if you want to withdraw from a mutual fund after 5or 10 years?
July 15th, 2010
I’ve been saving 300 a week thats about 10k a year. If I put it into a mutual fund and keep adding 300 a wk. What happens if I take it out in 5 or 10 years to buy land and build a house? is it worth it or what else should i invest in?
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It is best to do that (or as much as possible) in a Roth IRA, because contributions are after tax (never taxed again), "qualified" gains are never taxed, and distributions are never required (no required minimum distribution, until after your death). Since contributions are after tax, those can be withdrawn at any time. And up to up to $10,000 of unqualified gains can be used to buy, build, or upgrade your 1st home. So a Roth IRA is excellent for part of your emergency fund. Having a retirement plan at work does not limit what you can contribute to a Roth IRA, but too much income might (or may make you ineligible).
If the mutual funds are in a taxable account, you have to keep excellent long term records of your cost basis: cost of shares you bought, cost of shares from dividends and capital gains (distributed/taxed annually) if reinvested as more shares. You will need that info when you sell shares to figure capital gains, although, for mutual funds you can use average cost basis instead of having to figure the actual cost of which shares you sell.
That’s your best move for building savings… Averaging into a strong no load mutual fund over time. I like your idea.
You will owe capital gains taxes on the average cost basis of your shares.