If you sell stocks within a 401k but don't pull the money out of your account, is it taxed?

Question

If I have say a 401k account, and say I sell some of my stocks in there, but I don't pull the money out of my account, is the only tax involved the capital gains tax? Or will I pay my income tax on it and the 10% extra tax for people before 65 (I am younger than 65)?

Answer 1

No you will not pay any tax. Transactions within a 401(k) are not taxable events. You are only taxed when you withdraw funds, and the amount of money that is withdrawn is treated as "regular" income. The amount of gains/losses/dividends/etc. that occur within the account are irrelevant.

Answer 2

If I have say a 401k account, and say I sell some of my stocks in there, but I don't pull the money out of my account, is the only tax involved the capital gains tax? Or will I pay my income tax on it and the 10% extra tax for people before 65 (I am younger than 65)?

First of all the key age if it applied it would be 59.5 not 65.

Selling things within the 401(k) is not a taxable event. It also isn't a taxable event if interest or dividends are earned withing the 401(k).

When you transfer money outside of the 401(k) you might have a taxable event.

Rolling traditional 401(k) money to a traditional IRA or another tradition 401(k) doesn't trigger taxes. Moving Roth 401(k) to Roth IRA doesn't trigger taxes.

So what does trigger taxes?: (this list isn't exhaustive)

• Going from Traditional 401(k) to Roth IRA. That is because you are changing the flavor of the money: Traditional to Roth.
• Going from Traditional 401(k) to a non-retirement account. Again a change in flavor.

Depending on your age there can also be penalties. The IRS does have a chart showing what can be rolled over and to where.