How to Cash Out an IRA

By Jay P. Whickson

  • Overview

    It's not always wise to cash out an IRA, but if you absolutely have to do it, be glad that the money's available. You can cash out your IRA at the bank or in mutual funds or stocks the same way. The amount of taxes and penalty you pay when you cash it out depends on your age and the type of IRA.
    If you own stock, don't expect your money the day you cash out an IRA.
    • Step 1

      Call the company that holds your IRA and see if they can mail you the forms. If a local bank or broker holds the IRA, then go to the bank or broker and fill the forms there. Make sure you take a form of picture ID, just in case they require it to cash out your IRA.
    • Step 2

      Sell off your positions if you have your IRA with stock or mutual funds. If it's with a mutual fund company direct, when you fill the forms to cash the IRA, it automatically does this. If it's with a brokerage house, you have to wait 3 days for the trade to settle before you cash out the IRA. Otherwise, there's no cash in the account. If you hold your IRA in several different mutual funds within one company, make sure you don't need a form for each fund.

    • Step 3

      Fill out the form for the amount you need. If you're putting the money elsewhere, fill out the forms with the receiving company and let them send the forms for you. This way the money goes directly to them and there's no taxable incident. If the money is for your personal use, take only the amount you need.
    • Step 4

      Bypass the penalty if you are totally disabled. You can also take the money in a series of substantially equal periodic payments over your life expectancy or yours and your beneficiaries. If you need the money for medical expenses, they have to be more than 7.5 percent of your adjusted gross income. Remember, you don't have to itemize to get this one. If you're paying for higher education expenses or a first time home buyer, you also avoid a penalty.
    • Step 5

      Look at the type of IRA you're cashing out to calculate the penalty and taxes. If you cash out a Roth IRA, you only pay penalty and taxes on the gain. The traditional IRA taxes and penalizes every dollar. Remember, if you're over 59½, you don't pay any penalty.
    • Step 6

      Expect a mandatory 10 percent withheld on the Roth for taxes. Many institutions also require a 10 percent withholding unless you physically request to opt out of the amount. When you cash out an IRA, it's always best to have enough money withheld for taxes then.
    • Skill: Easy

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