What is the best way to withdraw principal amounts from a non tax-sheltered stock and mutual fund portfolio?

It used to be (pre-1987) that you could withdraw principal first and then earnings, thereby escaping paying tax on any interest or growth. Not so anymore. Whatever amount you take out will be appropriately split between principal and interest, and taxed as such. This law changed around '87, so anything invested before this time the old rules will still apply.

With the above said, take the losses first (they're deductible) and the gains second (they're taxable). If you have any pre-87 money, take that out after the losses, and then the gains. Alwys try to pay less money to the taxman.

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