Is Capital Gain on my 401k taxable?

Question

I bought and sold several mutual funds in my 401k this year. I had made money on most of the sells. Do I need to pay tax on capital gains on my 401k account? If not, does that mean I can trade frequently without worry about any short term capital gain?

Answer 1

There is no such thing as a capital gain on a 401(k). As long as the money stays in the 401(k), you don't pay any taxes at all. When you take the money out, ALL of it is regular income.

Answer 2

The capital gains you made this year in your 401K will be taxable when you start to withdraw the funds at retirement, but not now. A 401K is tax-defered, not tax exempt. You can make frequent trades without paying taxes now. The taxes will be due on the money, both your deposits and any net gains, when you withdraw the funds.

Answer 3

No, it is not taxable.

All money in your 401K remains tax-deferred until you start pulling money out, and then you are taxed at your full marginal rate on the amount you take out.

The rest of the account remains tax-deferred as long as it remains a 401K, or IRA account.

This fact does NOT apply to ROTH IRAs or ROTH 401(k)s, which operate under a very different set of rules.

To answer your second question - yes, you can do any and all manner of trades, and all gains ( and losses ) are not reportable and not taxable or deductible.

Answer 4

You may want to purchase a copy of the Turbo Tax software suitable for your situation or talk to a tax accountant. And don't forget your state and local tax preparation.