Key Takeaways
- Strong markets don’t last forever, so gains today aren’t guaranteed to still be there tomorrow.
- If your plan is on track and you’ve been eyeing a meaningful expense, this may be a good time to use some of that growth.
- Using a portion of your gains for something you actually want is your plan working the way it was designed to.
- Paying capital gains tax is simply part of the process, and it’s completely manageable when you plan for it.
This scenario comes up often: a couple has wanted to do a major home renovation for years, but never pulled the trigger. Then they look at their portfolio and realize it’s grown by over a million dollars over the past year.
They wonder if they can use some of that to finally get the renovation done.
The answer is often yes. They can pay the taxes on those gains, do the renovation, and still be in the position their plan called for a year ago.
Based on how the market has been moving, some of you may be closer to a similar “yes” than you think.
High Markets Don’t Last Forever
Portfolios have grown a lot over the past couple of years. If you check your account balance right now, there’s a good chance you’ll see a number higher than you expected.
I don’t know how long this will last, and I’m not going to pretend otherwise. Nobody can tell you when the next pullback will happen or how dramatic it will be. But I do know that the market moves in cycles, and the gains sitting in your account today aren’t guaranteed tomorrow. At some point, things will change.
That’s not a warning to sell everything and hide cash in your mattress. It’s just a reminder that if there’s something you’ve really been wanting to do, waiting for a “better” moment might not serve you. That better moment might be now.
What Does It Mean to Take Money Off the Table?
This applies specifically to money in a taxable brokerage account, not your retirement accounts. Your plan accounted for growth like this, maybe even more of it.
If your financial plan is on track, and you have more than you need to stay that way, using a portion of your gains for something meaningful can be part of a sound strategy. That might look like:
- Finally buying the car you’ve been wanting
- Paying for a home renovation you’ve talked about for years
- Funding a trip with your family before everyone’s schedules get harder to align
- Building the house you’ve always wanted
You will owe capital gains tax on money you pull from a taxable account, but owing tax on a gain means your investments grew, which is a much better position than the alternative.
In practice, this usually means selling a portion of your investments, setting aside enough to cover the tax, and using the rest for whatever you’ve been planning. If you’re using $200,000 for a project, that might mean selling closer to $230,000 or $240,000 worth of investments, depending on your tax bracket and how long you’ve held the position.
All you really need to do is account for the cost of what you want to do and the taxes on the gains, so you don’t find yourself short in the middle of a project.
(We’ll walk through the actual math together before you commit to anything, so there aren’t any surprises when you file.)
My caveat is that this only works if the money is truly extra. If pulling funds out would put your retirement or other goals at risk, that’s a different matter entirely.
Don’t Get Married to the High Balance
Let me underscore that while your high balance now might feel permanent, it isn’t.
I try to remind clients, and myself, that the growth we’ve seen recently is something to be grateful for, not something to expect indefinitely. A portfolio that’s up a million dollars this year could look different next year. It’s just how markets work.
This is exactly why using some of that growth now, for something that matters to you, can make sense.
How to Evaluate Whether to Pull Money Out
If you think you might be in this position, here’s where to start as you weigh your choices.
- Get an actual dollar figure. What does the car, the renovation, or the trip really cost? Vague amounts make it impossible to know if this makes sense, so get as specific as possible.
- Ask about the tax impact first. The tax hit depends on how long you’ve held the investment and your current bracket. That number should factor into your decision and be accounted for.
- Confirm your plan has room before you touch anything. A balance that’s up doesn’t automatically mean you have room to spend from it, so weigh it against your projections and plan.
- Separate “I want this” from “I need to cash out on a high.” If you’ve been wanting to do something for a while and the money happens to be there, that’s completely reasonable. If you’re only doing this because you’re worried gains will disappear tomorrow, slow down. This isn’t about outguessing the market.
If you ran through those four steps and think you might be in a good spot to act, that’s exactly what a review meeting is for. Bring the number you have in mind, schedule a time to talk, and we’ll pull up your plan and look at it together.
Frequently Asked Questions (FAQs)
Q: Will pulling money out mess up my long-term plan?
A: Not if we plan for it. Before you use any gains, we’ll look at your specific numbers to confirm your plan still holds up afterward.
Q: What if the market drops right after I take money out?
A: That’s one reason this can work well. You’ve locked in the use of those gains rather than watching them potentially shrink.
Q: Do I need to sell investments to do this, or can I use cash I already have?
A: Either can work, depending on your accounts and goals. We’ll look at what makes the most sense for your tax situation before deciding.
Content in this material is for general information only and is not intended to provide specific advice or recommendations for any individual.
