What Is the Penalty if I Cash in All My IRA Before I Am 70 1/2 Years Old?

Individual retirement arrangements, or IRAs, offer tax advantages for investors hoping to save toward retirement. You do not have to wait until you are 70 1/2 to cash in your IRA without a penalty. You can cash in your account without penalty if you are at least 59 1/2.


Money that you contribute to a traditional IRA has not yet been taxed. Therefore, when you withdraw the funds, you must pay income taxes on the money, including both contributions and earnings. You must pay these taxes whether the money is withdrawn after you have turned 59 1/2 or before. However, you will pay an additional penalty of a 10-percent early withdrawal fee on any unqualified distribution that you take. For instance, if you cashed out your IRA when you were 58, you would pay income taxes and the additional 10-percent tax penalty on the entire distribution.


Some exceptions exist that allow you to cash out your IRA before you turn 59 1/2 without being penalized. For instance, you can earn a waiver of the penalty if you have unreimbursed medical costs more than 7.5 percent of your adjusted gross income. You also can cash out your IRA if you are disabled. In addition, if the money that you take does not exceed the cost of your medical insurance or the cost of higher education, then you do not need to pay the penalty. You also can cash out your IRA penalty-free to pay for a first home.

Roth IRA

Roth IRAs carry the same penalties as traditional IRAs for withdrawing money from your account before you reach the age of 59 1/2. However, the Roth IRA penalty only applies to investment earnings your account has enjoyed. Your contributions to a Roth IRA are post-tax rather than pre-tax, which is the case with a traditional IRA. Therefore, you can withdraw your contributions from a Roth IRA at any time without receiving a tax charge. If you cash out an entire Roth IRA account before age 59 1/2, you'd pay income taxes and the 10-percent tax penalty only on the earnings portion of the account.

Required Distributions

The 70 1/2 age marker serves as an important milestone for IRAs. At that age, you must begin to take minimum distributions from your account if you have not already started taking them. You calculate your required minimum distribution based on the balance in your IRA and your life expectancy. The Internal Revenue Service provides guidance for determining your life expectancy.


About the Author

Tom Gresham is a freelance writer and public relations specialist who has been writing professionally since 1999. His articles have appeared in "The Washington Post," "Virginia Magazine," "Vermont Magazine," "Adirondack Life" and the "Southern Arts Journal," among other publications. He graduated from the University of Virginia.