Is changing 401K investments a taxable event?
I enrolled in FB's 401K plan when I joined the company and chose to distribute my allocation into a bunch of Vanguard target date funds alongside a bond fund as well. Over the course of the past year, I have realized that my 401K portfolio performance has been rather dismal, mainly because of the bond funds in my portfolio. I am quite far away from retirement and as such, would want all my funds to be deployed to equities and not to bonds as they are lagging (~0% or -ve returns) as opposed to my equity returns (~>15%). While I have already changed my investment elections going forward, how do I change allocations for the existing funds in my account? Would that involve selling existing funds and would that be a taxable event? #personalfinance #investments #401k
No you’re good
No
No
As long as funds stay in the 401k you can make all the investment changes you want without creating a tax liability.
It is not a taxable event to shift investments within your 401K. It is only a taxable event when you withdraw from your plan.
So, I can change investment elections for future investments as well as shuffle investments for existing funds and both are allowed, non-taxable and have zero implications?
Yes. Just don't cash out. I have personally changed future elections and current allocations multiple times within the past 2 years
Nope, you can keep changing them without any tax consequences right now. When it is time to withdraw you will pay taxes based on the original cost basis of your investment and the gains. Your brokerage should track all that for you automatically
This is one of the great advantages of retirement accounts (and HSA which fb will soon have, though it takes time to accumulate in there). As you get older and want to rebalance/change your overall asset allocation, you can utilize your retirement accounts first to avoid tax on rebalancing when you have lots of gains For me, I'm close to the opposite situation as you as I'm getting closer to (early) retirement and will want to increase my bond portion. I'll do that by first switching within my retirement accounts and only a bit of nonretirement. Depending on how much longer I work, I might not have any more "wiggle room" within the retirement accounts, such that if stocks go up further I will have to sell in my brokerage (& pay tax, push me out of aca subsidies potentially depending on the law then). Another reason to max out retirement accounts as much as possible when you can
If you don’t mind sharing some details on your early retirement: 1. What annual expenses are you planning for? 2. What is your current total investment portfolio? 3. Is your home paid off? 4. Where do you plan to retire? (State/region/country) 5. How old are you? Will be very helpful I think for many people on Blind with FIRE aspirations
Thank you for the response. Yes was referring to you, but I goofed and posted on the main thread instead. I think at the mention of ‘35M’ I can stop reading. :) not sure if your scenario is really a reference for most folks aiming for FIRE (their goal would usually be 10% of where you already are) The world is your oyster and you can indeed do whatever you wish from here on in life. Wish you a lot of peace and happiness! (I usually also say prosperity but I think you have that box well checked off already!)
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