Can I Cash Out My IRA?

There have been significant changes in recent years when it comes to IRA rules, but if you plan to withdraw your money there are still several important points you must keep in mind when withdrawing it from an IRA account.

Typically, to withdraw funds without incurring penalties you must be at least 59 1/2. There may be exceptions; please read further for more details.


Money you withdraw from an IRA will generally be taxed as ordinary income unless an exception applies, potentially pushing you into higher tax brackets and incurring additional taxes depending on its amount and purpose of withdrawal.

Depending on when and how soon you cash out your IRA before age 59 1/2, any withdrawal will incur a 10% federal penalty tax on the taxable portion of its withdrawal. To reduce or avoid this penalty tax altogether, money from these withdrawals should generally be used to cover qualified education expenses for yourself, your spouse, children and grandchildren.

Traditional IRA contributions are calculated by dividing your cumulative nondeductible contributions across all of your IRAs by their combined account balance at year’s end, then multiplying this result by 1. For SEP IRAs, Simple IRAs and SARSEP IRAs, however, nondeductible contributions are determined by subtracting earnings from total value of account.


Traditional IRAs come with strict withdrawal regulations. If you withdraw the money before its required beginning date (RMD), penalties could apply and be steep.

RMDs are calculated based on your life expectancy and account balance at the end of last year, using an IRS chart.

Withdrawals from Roth IRAs differ. You can withdraw contributions without paying taxes or penalties, and earnings after age 59 1/2 can also be withdrawn tax- and penalty-free.

Many people use their IRA funds for emergencies or major purchases, and it may be tempting to dip into retirement savings in order to access cash quickly. However, personal finance experts advise against tapping your retirement accounts as a source of emergency or major purchase money; there may be better alternatives out there like using savings for high-interest credit card debt payments instead.


If you are switching jobs and still have funds left in the retirement plan of your former employer, consider rolling it over into an IRA as this can often be more tax efficient than cashing it out and paying taxes.

Rollover is a method of moving assets between accounts (traditional to Roth or vice versa) without becoming taxable or reported to the IRS. The transfer begins once physical possession of funds are given over and ends when received at their final destination account.

If you pass away before reaching age 59 1/2, your heirs may take over your IRA assets but will owe income tax and an early withdrawal penalty of 10%. A financial professional can assist in deciding which type of rollover strategy would best fit with your situation.


Typically, the IRS charges an early withdrawal penalty of 10% when money is taken out of an IRA before age 59 1/2 – in addition to any income taxes you owe – although in certain instances withdrawals are allowed without incurring this fee.

As an example, you can avoid penalties if you use your IRA funds to cover qualified education expenses for yourself, your spouse or children – such as tuition, fees, books and supplies. But to do this correctly you must abide by IRS rules in terms of calculating how much is covered.

Before opening an Individual Retirement Account (IRA), make sure you understand its withdrawal and fee policies before opening one at any financial institution, such as traditional brokerage firms, investment firms, banks or robo-advisors. Certain IRAs require maintaining minimum account balance or meeting other requirements; others charge annual fees that depend on your type of investment vehicle or account balances.

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