How Do I Convert My IRA & 401(k) to Cash?

Cashing out your accounts before age 59 1/2 can mean penalties.

Cashing out your accounts before age 59 1/2 can mean penalties.

Keeping your retirement savings dollars tied up until you say good-bye to your working days sounds great on paper. But let's face it: There may be times when you'll need to get at the money sooner. The Internal Revenue Service has set up a tax and penalty structure to discourage you from raiding your IRA and 401(k) plan. Knowing the rules at least lets you know what you're in for if you need to cash out early.

IRA Cash-Out

Contact your IRA trustee and indicate your plan to convert the account to cash.

Download or pick up any paperwork required and fill it out. Type in your name and contact information, as well as the account number. Let the trustee know whether you want a check by mail or whether you want the funds transferred into your personal checking or savings account. If a transfer is in order, give the trustee the bank name and routing number, as well as your account number. Sign and submit the forms, along with any required fee.

Look for the check by mail or for newly deposited cash in your personal account. It may take three to seven business days for the bank or brokerage to convert your investments to cash. Allow time for delivery by mail if you request a check.

401(k) Cash-Out

Get in touch with your plan administrator about converting the account to cash. Listen to warnings about the mandatory 20 percent federal tax withholding that must take place in the event of a cash conversion. Think twice.

Pick up or download the distribution forms. Account closing forms may also be needed. Complete the forms, providing your name, mailing address, phone number and 401(k) account number. If you want the cash via electronic transfer, provide the bank name and routing number along with your personal checking or savings account number. Sign and submit the forms to your plan administrator.

Look for your check by mail or for your electronic deposit. Allow at least seven business days for the conversion and more time for transit via U.S. mail.


  • If you're not yet 59 1/2 when you cash out a traditional IRA, you'll pay ordinary income tax plus a 10 percent penalty on the amount. If you are at least 59 1/2, you'll pay only income tax.
  • The same applies to a 401(k) withdrawal. Because of the mandatory 20 percent withholding, depending on your tax bracket you might not owe any income tax when you file your return, just the penalty. Of course, if your tax rate turns out to be higher than 20 percent, income tax will be due.
  • A Roth IRA holder who is not yet 59 1/2 pays income tax and penalty on any earnings withdrawn if the account is not yet 5 years old. If the Roth is at least 5 years old, he pays only the 10 percent penalty on earnings.

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