Tax liability? | 401k Questions

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Asked 5/22/2009

Tax liability?

Like many people, I have a 401k that I have been investing in through my employer and let ride for many years. Also, like many people, it has plummeted in value the past year. On the other hand, I have been making non-exempt investments for several years with greater success and would like to assume that same active role managing my 401k.

My employer permits me to control what I invest in. However, I am concerned about any possible tax liabilities I would create through selling and buying within my 401k. For example, if I were to liquidate (not withdraw) several of the mutual funds in my 401k and reinvest them in other funds/stocks/options, would I have a tax liability?

I would appreciate any information or links. The more detailed, the better. Thanks.

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Answer 1/1 - Submitted 5/22/2009

There is no tax consequence for transactions that happen in a tax deferred 401(k) plan. You pay no tax on gains until distribution (nor can you deduct losses).
On distribution, all income is taxed at your regular tax rate, there is no capital gains treatment.

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