Can You Cash Out Stocks? The Process Explained

Cashing out stocks involves converting your investment shares into cash, a common financial transaction for many investors. This process requires selling shares through a brokerage or investment account to receive monetary proceeds. Understanding the steps and implications of such a sale is important for managing your financial assets effectively.

Understanding Your Stock Holdings

Before cashing out stocks, it is important to understand the different forms of stock ownership and the types of accounts holding them, as these factors influence the process. Common stock represents ownership in a company, typically carrying voting rights and a claim on earnings. Preferred stock offers fixed dividends and a higher claim on assets in liquidation but usually lacks voting rights. Both types are readily salable once vested.

Employee equity, such as Restricted Stock Units (RSUs) and Employee Stock Options (ESOPs), has specific rules before conversion to cash. Restricted Stock Units grant employees company shares that vest over time, becoming fully owned after fulfilling conditions like continued employment. Until RSUs vest, they have no tangible value for sale. Employee Stock Options provide the right to purchase company stock at a predetermined price, but the options must be exercised and converted into shares before they can be sold. Both RSUs and ESOPs are subject to company or plan-specific vesting schedules and exercise requirements.

Stocks are commonly held in various account types, each with distinct characteristics impacting the selling and withdrawal process. Taxable brokerage accounts are standard investment accounts where shares are easily bought and sold. Funds in these accounts are typically available for withdrawal once trades settle. Retirement accounts, like Individual Retirement Accounts (IRAs) and 401(k)s, hold investments that grow tax-deferred or tax-free. While stocks within these accounts can be sold, withdrawing cash from the retirement account itself often involves specific rules and potential penalties if done before retirement age.

Some investors may hold stocks through Direct Stock Purchase Plans (DSPPs) or directly with a transfer agent. These methods allow individuals to buy shares directly from a company, often bypassing traditional brokerage fees. Selling shares held this way might involve contacting the company’s transfer agent directly, which could entail a different process and potentially different fee structures or settlement timelines compared to a brokerage account.

Selling Your Stocks

Selling stocks involves a series of procedural steps, primarily executed through your brokerage platform. The initial action requires accessing your investment account, either by logging into an online brokerage platform, using a dedicated mobile application, or by contacting your broker via phone or in person.

Once logged in, you will navigate to the trading section, typically labeled “Trade,” “Sell,” or “Order.” Within this section, you will input the specific details of your sell order. This includes entering the stock’s ticker symbol and specifying the exact number of shares you wish to sell. You will also confirm that the transaction type is a “Sell” order.

Choosing an order type is an important decision that impacts how your sale is executed. A market order instructs your broker to sell your shares immediately at the best available price in the market. While it ensures prompt execution, the exact price you receive is not guaranteed due to potential rapid price fluctuations. Conversely, a limit order allows you to set a specific minimum price at which you are willing to sell your shares. This ensures you do not sell below your desired price, but there is no guarantee that the order will be executed if the market price does not reach your specified limit.

After entering all the details, you will typically encounter a review screen to verify the accuracy of your order. It is important to carefully check the stock symbol, the number of shares, the order type, and the price (if it’s a limit order) before proceeding. Once confirmed, you place the order, and the brokerage system processes it.

Upon successful placement, you will receive a confirmation that your order has been received, and subsequently, a trade confirmation once the order is executed. Funds from the sale are not immediately available for withdrawal due to the settlement period. As of May 28, 2024, most stock transactions in the U.S. operate on a T+1 settlement cycle, meaning the trade date plus one business day. This indicates that the ownership of the shares and the cash proceeds are officially exchanged one business day after the trade is executed, making the funds available for withdrawal after this period.

Receiving Funds and Tax Implications

After selling your stocks, the proceeds are not instantly available for transfer to your bank account due to the settlement period. With the current T+1 settlement cycle for most stock transactions, the funds become officially settled and accessible on the next business day following the trade date. For example, if you sell shares on a Monday, the funds will generally settle and be available for withdrawal by Tuesday. Once funds are settled in your brokerage account, you can initiate a withdrawal.

Common methods for receiving funds include electronic bank transfers, typically via Automated Clearing House (ACH), which usually take one to three business days to appear in your linked bank account. Wire transfers are another option, often faster, potentially arriving the same day or next business day, but they typically incur a fee ranging from $15 to $35. Requesting a physical check is also possible, which can take several business days or even weeks to arrive by mail.

Selling stocks can have significant tax implications, primarily concerning capital gains and losses. A capital gain occurs when you sell a stock for more than its original purchase price, while a capital loss results from selling for less. These gains and losses are categorized as either short-term or long-term, depending on how long you held the asset. Short-term capital gains apply to assets held for one year or less and are taxed at your ordinary income tax rates. Long-term capital gains apply to assets held for more than one year and generally receive preferential tax treatment with lower tax rates.

Calculating your gain or loss requires knowing the “cost basis” of the shares sold. The cost basis is generally the original purchase price of the stock, plus any commissions or fees paid when you acquired it. Brokerage firms are required to track and report this information. After a sale, your brokerage firm will provide Form 1099-B, “Proceeds From Broker and Barter Exchange Transactions,” by mid-February of the year following the sale. This form details the sale proceeds and cost basis, which is essential for accurately reporting your capital gains or losses on your tax return, typically on Schedule D and Form 8949.

Selling stocks held within tax-advantaged retirement accounts, such as IRAs or 401(k)s, does not typically trigger immediate capital gains tax. Instead, taxation occurs when funds are withdrawn from the retirement account itself, and these withdrawals are usually taxed as ordinary income, often with penalties for early withdrawals before age 59½. The tax rules for withdrawals from these accounts are separate from the capital gains rules that apply to sales in taxable brokerage accounts.