If you’re strapped for cash, it can be tempting to raid your individual retirement account. After all, the money is just sitting there, and retirement might seem like a faraway dream. To cash out your IRA, you will need to get in touch with the company who oversees your IRA. This company is known as the IRA custodian. Depending on the company, it may take five to seven business days or more for you to receive a check if you cash out your IRA. There may also be tax penalties if you’re withdrawing your money before age 59 ½.
Understanding the Tax Consequences
If you’re over age 59 ½, you can start taking withdrawals from your IRA without any tax penalties. You will need to pay income tax on the withdrawal if it’s from a traditional IRA. In fact, starting at age 70 ½ you’re required to withdraw funds from a traditional IRA, which are known as required minimum distributions.
With a traditional IRA, if you’re under age 59 ½ you will owe a 10 percent early withdrawal tax penalty. This is in addition to the income tax you will also owe on the withdrawal. If you have a Roth IRA, you can make withdrawals when you’re under age 59 ½ with no penalty as long as you only withdraw your contributions. If you withdraw any earnings, they are subject to the 10 percent penalty.
Exceptions to the Tax Consequences
You can make penalty-free withdrawals under certain circumstances. You can make withdrawals to pay for the education costs of immediate family. You can also make withdrawals to pay for medical expenses. The expenses have to be more than 7.5 percent of your income if you’re age 65 or older. They have to be more than 10 percent if you’re under age 65. You can also make a penalty-free withdrawal of up to $10,000 to purchase your first home. You are also allowed to make a withdrawal if you become permanently disabled.
There’s also a provision that allows you to get distributions from your IRA. The IRS divides up your IRA into equal payments based on your life expectancy. You receive the payments on a regular basis. Once you start receiving equal payments, you have to continue them until you’re 59 ½ or for at least five years. If you make changes or stop the payments, you’ll be subject to the 10 percent penalty.
Contacting Your Custodian
To cash out your IRA, the first step is to contact your custodian. They may allow you to request a withdrawal online, which can speed up the process, or they may require you to fill out and submit a form. Once your request has been received, your custodian will need to sell any securities in your IRA and convert them to cash. Once this is done, they can send you the money. You can get a check, which will take five to seven business days in most cases. You may be able to set up an electronic funds transfer directly to your bank account, which can take one to three business days or more. If you have questions about the timeline for receiving your withdrawal, contact your custodian. They will let you know the steps involved and the best way to speed up the process.
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