How to Cash Out a Mutual Fund Early

When you need money, consider cashing out of a mutual fund.

When you need money, consider cashing out of a mutual fund.

You can cash out of your mutual funds on any business day without penalties for early withdrawal, with two exceptions. If you hold your mutual fund in a retirement account you can sell the fund and move your money to a different investment within the retirement account, without penalty, but if you want to take the cash out of the retirement account, you must pay a penalty plus taxes. The other restriction on cashing out of a mutual fund occurs if you hold Class B shares that have no load when you buy them but require you to hold them for six years to avoid paying the load fee when you cash out.

Check to see if your mutual fund is held in a retirement account or your shares are Class B shares by either calling your mutual fund or the broker who sold you the fund. If not, you can cash out of your mutual fund by entering an order to sell.

Call your account trustee if you know your mutual fund is held in a retirement account. If you have an IRA or other self-managed retirement account, your account trustee can be contacted through the broker or mutual fund from which you bought the fund. If you have a 401(k) through your employer, contact the retirement fund coordinator in your human resources department to ask how to cash out of your fund. Remember, there are taxes and penalties for cashing out of a retirement account.

Call your broker, or the mutual fund if you bought your fund directly, and place an order to sell your shares if they are not in a retirement account. It is also usually possible to access your portfolio online and place an order using the online order entry system. Like stocks, mutual funds have three-day settlement, so your cash will be available in three business days. If you are cashing out of a retirement account, your account trustee will be able to tell you how long it will take to receive your cash.

Check your trade confirmation to make sure it is correct and to verify the amount of cash that will be available on the settlement date.

Tip

  • If you are not sure whether you have Class B shares, ask your broker to verify your class of shares. This presents a problem only if your holding period has been less than six years. If you do own Class B shares and you have held them for less than three years, you will pay a contingent deferred sales charge (CDSC), which declines each year you hold the shares until -- after the sixth year -- it disappears.

Warning

  • If your mutual funds are in a retirement account and you are younger than 59 1/2 years old, the penalty for cashing out is 10 percent plus any income taxes owed on capital gains. If you didn't pay income tax on the money before it was deposited to your retirement account, that money is taxed as regular income.
 

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