It can take years, and often decades, to build up funds in an Individual Retirement Account (IRA). However, it can take just moments to cash it out. Do you know the ins and outs of IRA cashouts? Take our quiz to test your knowledge!
At age 59 1/2, your IRA funds become available to you without an early withdrawal penalty.
Unless they can qualify for exceptions, this 46 percent pays the added income tax and penalty that go along with early withdrawal.
Between taxes and interest, people who withdraw their IRAs before age 59 1/2 may lose up to 38 percent of their funds to taxes and the 10 percent withdrawal penalty.
Hardship exceptions can help offset unforeseen expenses, including both funeral costs and medical bills.
If you want to retire early, a 72(t) Early IRA Distribution allows you to withdraw equal amounts from your IRA, once a year, for at least five years.
If you haven't owned a home for at least two years, or if you or your loved ones are going to college, you can qualify for penalty-free IRA withdrawal.
You shouldn't withdraw funds in either of these circumstances. Most accountants wouldn't advise you to remove IRA funds when the investment is doing poorly, and if you need some quick cash, they would suggest finding another source.
Do the math: The goal is to increase your worth and lower your debt, so if you can come out ahead by cashing out an IRA to pay off credit cards, sometimes it's a good idea. However, you might want to talk to an accountant before cashing out.
Risk of foreclosure or eviction is considered a hardship, and you may be able to withdraw from an IRA penalty-free to help you save your home.
Not all employers or funds allow every category of early, tax-free withdrawal. Check with your human resources manager to find out what your company allows.