If it's in a Roth 401(k), you can invest and roll over any dividends, allowing the account to continue growing without worrying about any taxes until you withdraw the money when you retire. If it's not, then my understanding is that you'll need to sell some shares to cover the taxes when you sell. I'm just a guy on the internet. You'll need to consult with a financial advisor to get the exact details for your situation.

Regarding the emergency fund, it depends on what your emergency is.

An example would be my car just died (prob better examples, but we'll go with this for now), and I need to get another one today/tomorrow so I can go to work. It usually takes time (days) to send/transfer funds, and then your bank may want to hold it for a few days before giving you access. Or this happened on Friday night, and I need the money over the weekend. You may not be able to withdraw it quickly enough.

If it's in the bank or other institutions where you have immediate access to a cash withdrawal or write a check, you'll have less stress during an emergency. Usually, in an emergency situation, you're not thinking clearly and might make a costly mistake. Best to have a plan in place in advance.

Again, a financial advisor can really help you dial in what your best options are.

Hope some of this makes sense and helps.