Withdrawing IRA assets early usually hits you with income taxes and a 10 percent penalty, but the IRS gives you a window to change your mind about a contribution. If you contributed too much or need to undo the transfer to pay a surprise expense, you can withdraw the money and close the account in the first year.
The IRS allows you to withdraw your contributions to a traditional IRA before the due date of your tax return -- April 15 of the year after you opened it. So you can close out an IRA opened in 2013 before April 15, 2014, and avoid paying taxes or penalties, as long as you didn’t take a deduction for the contribution and you take out any interest or other income that you earned on it. If you filed your taxes by the due date but didn’t withdraw the contribution, you can still do so up to six months after the April 15 deadline, but you’ll have to file an amended tax return.
Roth IRAs are even more flexible because you don’t get a tax deduction for contributions, so the IRS doesn’t require you to report them on your tax return. If you close your account before April 15, you will pay no taxes or penalty on contributions, but you will be taxed for any earnings.
Check with the bank or brokerage that holds your IRA to be sure that it will close the account instead of leaving it open with a zero balance, which can mean you incur maintenance and dormancy fees. You should also inform the administrator that you do not want it to withhold taxes on your withdrawal from a traditional IRA; otherwise, you will only get a portion of your withdrawal now and the rest at tax time.
The investments inside your IRA may be subject to particular restrictions separate from the IRS rules for early withdrawals. For example, if you hold the money in a certificate of deposit, you will likely have to pay an early withdrawal penalty for closing the account. And some mutual funds discourage frequent trading by charging early redemption penalties that can cost you a percentage of your investment if you take it out within a certain amount of time.
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