Yes and no. Earnings on withdrawals are calculated on a pro-rata basis, meaning selling a highly-appreciated fund vs. one that's underwater doesn't matter as much, since the withdrawal looks at total appreciation for the account. Every withdrawal assigns an earnings portion according to the following formula:
- (Account Contributions / Account Value) x Distribution = Contribution Portion
So the only advantage of selling one investment within the account versus another is to lock in the gains. But you're always looking at the total tax liability at the account level, not the portfolio's. Let me know if that makes sense or if you need me to explain further, as this is complicated and can trip up anyone!
VP, Research & Development
This information does not constitute tax advice and is provided for informational purposes only. Please consult your tax advisor, financial advisor, local taxing authority, and/or plan provider or sponsor for more information.