Taxes on withdrawals from taxable investments

When you sell taxable investments, you must pay taxes on any unrealized gains that you have on the investment.

Unlike tax-deferred investments, the original purchase price for the investments is not tax-deductible, so it becomes part of your basis. As your taxable investment grows, the gain is usually realized and taxed each year. (You can determine the percentage of taxable gain that is realized each year in the Rate of return window. The default is 100 percent or all of the gain realized each year). So when you sell taxable investments, you usually have a small unrealized gain to declare.

To determine your unrealized gain, the Lifetime Planner calculates an "average basis" for your taxable investments. That is, the Planners determine the original purchase price and reinvested gain for all the investments in your taxable portfolio. This is the portfolio's total basis.

The Lifetime Planner divides that total basis by the value of your portfolio to find the average basis for any one investment. For instance, suppose you have $100,000 in taxable investments and your total basis is $80,000. This makes your average basis 80 percent ($80,000 / $100,000) and means an average of 20 percent of the portfolio's value is unrealized gain.

When you sell $10,000 worth of stock, your gain is estimated to be $2,000 (20 percent x $10,000). If your post-retirement tax rate is 10 percent, your taxes on the withdrawal are $200 (10 percent x $2,000). It is usually cheaper to withdraw from taxable investments whenever possible.

Note for our Canadian Customers

The following terms will be different in the Canadian releases of Quicken.

Canada: "Cheque" / United States: "Check"
Canada: "Colour" / United States: "Color"
Canada: "Centre" / United States: "Center"
Canada: "Realise" / United States: "Realize"
Canada: "Behaviour" / United States: "Behavior"
Canada: "Analyse" / United States: "Analyze"