Is it possible to cash out a simple IRA before retirement?

vishenda · #1 (**permalink**) 10-17-2006, 01:33 PM

If you are under 59 1/2 years old and you cash it out, the company will take a 20% penaly off the top AND tax you at the highest tax rate possible.
You can take up to $10K without penalty (you still have to pay the taxes) in certain situations, such as for a first time home purchase, the education of a dependent, the care of a parent, etc. Contact the company that maintains the account for you and they can tell you the rules and proper ways to prove you are using the money appropriately.

greedy4chips · #2 (**permalink**) 10-17-2006, 06:32 PM

There is a way to begin to systematically withdraw funds from your IRA. The per year amount is based on the value of IRA as of December 31st of the previous year up until your birthdate of the current year in which you begin to take the withdrawals. Each year's payment is equal and must be taken a minimum of 5 years or until age 59 1/2, whichever is greater. There is no penalty on these distributions.

Example
Age 43 59 1/2 - 43 = 16 years or payments
Age 51 59 1/2 - 51 = 9 years or payments
Age 58 59 1/2 - 58 = 5 years or payments ( 5 is the minimum number of years or payments)

You must also wait a full 5 years and 1 day from the first payment before you can take unlimited withdrawals even if you reach the age of 59 1/2 or else you are hit with the 10% penalty and interest charges.

You can basically cashout your IRA, but you must do it over 5 years or more.
Hope this helps!

piggybank4 · #3 (**permalink**) 10-19-2006, 09:12 AM

If you cash out your IRA early, you have to pay a 10% penalty, I believe.
(Plus you have to pay taxes on the whole thing)

instantinfo4you · #4 (**permalink**) 12-06-2006, 11:54 AM

Yes, this much is true. But if you are serious about your own finances, and are going to invest your own money, then it's not always a bad thing to lose $10,000 if you can make an extra $15,000. You have to analyze your risk vs. reward.

creditcardfree · #5 (**permalink**) 12-06-2006, 03:25 PM

greedy4chips is correct. This is called the the 72(t) rule with the irs. It is a way to get at your money prior to 59 1/2 without the penalty. Lots of rules to follow, but it can be done. You have to take the withdrawals for 5years or until age 59 1/2, whichever is longer.