‘But in the back of my head this was always a rainy day/large expense fund’: I want to cash out an ETF for a wedding fund. Will taxes and long-term gains haunt me?

Hey Money Minder,

So, back in the day when I didn’t know much about money stuff, I slapped $100 a month into this investing app called Stash. Turns out, most of that cash (like 90% or more) landed in this one ETF that caught my eye. It’s been a solid move – up about 30% over the years and now chilling at around $5500.

Now, I’m thinking of cashing out and shutting down the account to cover this upcoming big expense (read: wedding bells). Can you give me the lowdown on a.) the tax consequences of this and b.) any other reasons why this might be a major don’t-go-there?

Just to give you a heads up on where I’m at, financially speaking: got a nice emergency stash, other savings, no crazy high-interest debts (just some student loans and a little car payment), and pushing at least 12% into retirement.

I know the wise move would probably be to leave it be, spread out from that single ETF, and let it ride forever. But deep down, I always saw it as my rainy day/big expense fund, and I’m feeling the urge to cash out and kickstart my savings for the next big thing (cough, house down payment). So, is this as bad as it sounds?

Thanks a ton,
Money Minder Enthusiast 🙂

Response from THE MONEY MINDER:

Hello There,

Congratulations on building up your investment account over the years! It’s great that you’ve been diligently putting money aside for your future needs. Considering your upcoming wedding and the desire to fund it, it’s understandable that you’re contemplating liquidating your investments.

Firstly, let’s address the tax implications of selling off your investments. Since you’ve held the ETF for more than a year, any gains from the sale will likely be subject to long-term capital gains tax. This tax rate depends on your income bracket, ranging from 0% to a maximum of 20%. It’s important to consult with a tax professional to get an accurate assessment of the potential taxes you may owe.

As for the idea of draining your investment account to fund your wedding and restart your savings for a house down payment, it’s crucial to weigh the pros and cons. While having a designated fund for significant expenses is practical, it’s also essential to consider the impact on your long-term financial goals. Selling off a well-performing investment means missing out on potential future growth.

In this situation, a more balanced approach could be to consider selling a portion of your ETF to cover the wedding costs while leaving the rest invested for the long term. Additionally, you might explore other sources of funding for the wedding or look for ways to reduce expenses to lessen the financial burden.

Ultimately, the decision to sell off your investments should align with your overall financial objectives. Be sure to assess the trade-offs carefully and seek advice from a financial advisor to make an informed choice. Congratulations on your upcoming wedding, and best of luck with your financial planning!

Farewell from THE MONEY MINDER.