How to Close an IRA Account and Receive the Cash
You can cash in an Individual Retirement Arrangement (IRA) at any time. However, IRAs contain tax-deferred funds, which means that you have to pay income tax on withdrawals. If you cash in your IRA before you reach the age of 59-1/2, then you also have to pay a 10-percent federal tax penalty. Your IRA custodian may also assess penalties. If you have a substantial sum of money in your account, then closing it could take some time, since the custodian must file a Large Currency Transaction Report that includes details of your withdrawal.
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Instructions
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Find your most recent IRA statement and take it to the bank or brokerage house that houses your account. Alternatively, you can contact them by phone. Ask a representative to close the account. If your IRA contains bank products such as certificates of deposit, then you can access funds on the day that you close your account, but if your account contains securities then it takes a few days for your broker to sell your holdings and provide you with the cash.
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Tell the representative how much money you want withheld from your cash distribution to cover taxes. If you make no selection then your custodian automatically withholds 10 percent of your disbursement to cover federal income tax, although no funds are withheld from Roth IRA distributions. If you live in Georgia or Oregon, your custodian must withhold funds to cover state income tax, but other states either have no state tax withholding requirement or allow you to decide how much you want withheld.
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Ask the representative if you have to pay any kind of penalty for closing the IRA. Most banks charge an interest penalty on premature CD withdrawals, while insurance firms assess contract termination penalties on some IRA annuity withdrawals. If you wish to proceed despite the penalty, then confirm your desire to close the account and complete any necessary paperwork.
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Count your cash before you leave the bank to ensure that the representative gave you the correct amount of money. If you wait until you have left the bank to count your money, banks typically do not accept responsibility for underpayment of withdrawals .
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Tips & Warnings
Roth IRAs contain after-tax contributions and you pay no taxes of any kind if you leave your Roth account open for at least five years and wait until you reach the age of 59-1/2 before you make any withdrawals. The Internal Revenue Service (IRS) waives the premature withdrawal penalty on traditional IRAs in some situations, such as when you need to cash in your IRA to pay medical bills.
If you conduct one or more transactions that involve over $10,000 of cash within a 24-hour period, then your bank or broker must complete a Large Currency Transaction Report. You must provide the representative with information that includes your Social Security number and the reason for your withdrawal. Your bank shares the information with the IRS and these reports are used to help the government combat money laundering. If you try to avoid providing information, then your bank must also complete a Suspicious Activity Report with details of your transaction, and that report also gets passed to the IRS.
