How to withdraw money from a brokerage account

Here’s what to do when you need your money.

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If you want to invest in stocks that will rise over time to help you achieve your financial goals, you really need to have a brokerage account. A good brokerage account will provide many of the essential services you need to invest well, including not only the ability to buy and sell stocks, but also tools like research to help you evaluate potential investments.

No matter what you’re investing for — whether it’s to save for a new car or a new home or a real long-term goal like retirement — the time finally comes when you need to withdraw your money from your brokerage account. But unlike a bank account, withdrawing money from a brokerage account can sometimes involve additional steps. As long as you are aware of the requirements your particular broker places on the type of account you have, you should be able to access your money when you need it.

Why withdrawing money from a brokerage account can be complicated

Withdrawing money from a bank account is easy. Your bank holds your money on your behalf and you always have a fixed balance available when you need it. When you make a withdrawal, your bank simply reduces your balance by the amount of cash you withdraw. Nothing’s easier.

Brokerage accounts are different because typically the bulk of your account will be in stocks and other investments. The only time withdrawing money from a brokerage account is as easy as with a bank account is if you keep a significant amount of uninvested money in a regular brokerage account. In this case, most brokers give you the option of having a physical check sent to you, having money sent to a bank account via electronic funds transfer, or arranging a wire transfer. Most brokers charge fees for electronic transfers, which are faster than standard electronic funds transfers. Other than that, however, you shouldn’t have to pay any fees to access your money if you have a good broker.

Withdraw money when you need to sell stocks to find money

A common reason why you may not be able to withdraw as much money as you want from your brokerage account is that you need to sell the stocks or other investments you own in order to find the right amount of money. In this case, you will need to follow a three-step process:

1. Choose the stocks you want to sell and enter the appropriate trades with your broker.

2. Wait for trades to settle, which usually takes two business days.

3. Request the cash withdrawal once the proceeds from the sale have reached your account.

The hardest thing for many investors to understand about this process is the second step. When you buy or sell a stock with a broker, the transaction often appears to happen instantly, and you can usually see new positions reflected immediately when you view your brokerage account online. But behind the scenes, your broker is working with other financial institutions to ensure that the next internal steps happen on a set schedule. Current securities rules give brokers two business days to complete the settlement process, so that’s when your money will be available for withdrawal.

One thing to note is that if you have a margin account, your broker may allow you to withdraw money before your trades are settled. However, you may be charged margin interest for the period between when you make the withdrawal request and when the settled funds arrive in your brokerage account. Always check with your broker before making an automated withdrawal to make sure you won’t be hit with interest charges or other charges by jumping the gun.

Withdraw money from brokerage accounts for retirement

The discussion above assumed that you were looking to make withdrawals from a regular brokerage account. If the brokerage account you’re considering getting out of is actually a retirement account like an IRA, there’s a whole host of things to keep in mind.

Withdrawals from retirement accounts have tax implications that withdrawals from regular brokerage accounts do not. In particular, if you have an IRA or traditional 401(k) account and you withdraw money from it, then you will have to pay income tax on the full amount of your withdrawal. To calculate the tax owed, the IRS adds the amount of your withdrawal to your taxable income. You will then run it through the tax tables when you prepare your tax return and pay the resulting tax, which will depend on your income level and tax bracket.

If you’re at least 59.5 years old, that’s usually the end of the discussion. But those under 59.5 often have to pay an additional amount in early withdrawal penalties. The penalty is 10% of the amount withdrawn, and it can be quite a blow if you’re not careful. Fortunately, there are some exceptions to the penalty rules for withdrawals if you use the money for certain permitted purposes, such as buying a first home or paying for eligible college expenses.

Various brokerage firms handle this situation differently. Some require you to have potential tax withholding on the amount you withdraw from your retirement brokerage account, which may require you to make a larger withdrawal in order to end up with the amount of money you want. Others allow you to choose whether and how much you want to withhold from your withdrawal to cover taxes. If you don’t have enough money withheld to cover the tax, it will be up to you to make up the difference when you file your return – along with any interest or penalties that may apply in underdeducted situations.

Also, keep in mind that once you’ve taken money out of a retirement account, you can’t necessarily put it back unless you’re eligible to make future retirement contributions. There is a limited ability to treat a short-term withdrawal as a qualified rollover if you replace the money within 60 days, but you can usually only do this once a year.

Think about the consequences

Withdrawing from a brokerage account is not as easy as withdrawing money from your bank account. In most situations, the need to sell a stock or other investment to generate the cash you need can take extra time and effort. However, this is the price to pay for benefiting from the long-term wealth-producing power that stocks possess. By knowing the exact process your broker uses for the specific brokerage account you have there, you will be better prepared to handle the curve balls that may arise while still getting the money you need when you need it.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.