How to Withdraw Some Money From a Mutual Fund

A mutual fund pools cash from a large number of people and invests it in a group of stocks, bonds or other investments to make up a portfolio. Some mutual funds focus on certain types of stocks, business sectors, parts of the world or stock market indexes such as the Dow Jones industrial average or the S&P 500. The type of account you have, and who you opened it with or transferred it to, dictate the terms of any withdrawals, or redemptions, you take.

TL;DR (Too Long; Didn't Read)

To withdraw money from a mutual fund, you need to contact the account issuer, request to sell some of your shares and state what you want done with the proceeds. You will have to report any gains to the IRS and pay any associated taxes.

Contact Your Account Issuer

Contact the firm you hold your mutual fund account with. It could be the same company whose name is attached to your fund, such as Fidelity or Vanguard. You may also hold a mutual fund from one company with another mutual fund firm, bank, brokerage or other financial institution. You can find the contact information for the firm that you own your account with on your monthly or quarterly statement.

To protect your account against fraudulent or unauthorized withdrawals, the firm you redeem shares from might require that you make your request in writing, and obtain a signature guarantee from a commercial bank, on the form you use to ask for the trade. Not all companies follow this process, though.

Ask to Sell

Tell the account issuer that you would like to sell a portion of the shares in the mutual fund. Alternatively, you can execute this process at most firm's websites, if you have set up online account access. You may also be able to redeem your shares using an automated telephone system if you added that feature to your account.

In any case, you can elect to designate a dollar amount you would like receive from the transaction or a specific number of shares you wish to sell. Some mutual funds charge a redemption fee when you sell shares. The U.S. Securities and Exchange Commission limits the redemption fee a fund can charge to 2 percent.

Direct the Proceeds

Instruct your firm on what to do with the proceeds. If you hold a brokerage account, you can request that the money is kept in a money market reserve fund. If you have checkwriting or check card privileges, you can then access the balance in the money market. You can also have the proceeds from the shares you sell sent to you, via check or electronic bank transfer.

Report Gains to the IRS

When you sell mutual fund shares, you will have incurred a capital gain or a capital loss. If you sell the shares for more than you paid for them, you generally realize a capital gain. The inverse is true for a capital loss. In any case, you must report capital gains to the IRS at tax time.

Save your mutual fund statements, so that you can record your average cost basis, sales price and capital gain or loss for IRS reporting purposes. If you own mutual fund shares in an IRA, you can redeem them as described in this article. However, if you take the proceeds out of your IRA as a distribution, they may be subject to taxes levied by the IRS.

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