Can I Cash Out Some Part of an IRA?

An individual retirement account is an account that holds investments such as stocks, bonds and savings and checking funds. Typically, you will not need all the money in your IRA all at once -- in fact, regulations from the Internal Revenue Service (IRS) on IRAs are designed to get you to spend the money gradually over time. Whether you can cash out part of your IRA depends on several factors including the qualified status of the distribution, taxes, penalties and the reason for the distribution.

General Guide

Money in an IRA is available to investors at any time, so you can cash out a portion of the IRA when you need the money. However, the IRS has regulations on what constitutes a "qualified distribution." A qualified distribution is one that incurs no penalty. The IRS does not penalize withdrawals you make between the ages of 59 1/2 and 70 1/2. Prior to age 59 1/2, the IRS adds a 10 percent tax penalty to the taxable portion of the withdrawal -- for Roth IRAs, the 10 percent penalty applies only if the withdrawal exceeds your contributions, meaning you can't take out money you transferred from a traditional IRA or the earnings the IRA made without a financial hit. After age 70 1/2, with a traditional IRA, you must withdraw a minimum amount from the IRA at least once per year, the amount of which is based on the value of the IRA and your life expectancy. If you fail to do this, the penalty is 50 percent of the remaining required withdrawal amount. Roth IRAs do not have required minimum withdrawals after age 70 1/2, and therefore are a little more flexible.

IRA Investments

Whether you can cash out part of your IRA depends largely on the investments you have included in the IRA account. For example, if your IRA includes a savings account, these funds are fairly easy to liquidate. If you have your money in bonds, you might have to wait until the bonds mature to cash out without a loss.


The IRS treats funds in an IRA account as income. However, it handles the taxes differently depending on what type of IRA you have. With a traditional IRA, you contribute with pre-tax dollars and the IRS taxes you when you withdraw your money. With a Roth IRA, you pay with post-tax dollars and the IRS lets you withdraw tax-free. Regardless of when you pay the tax, how much tax you pay depends on the current tax rates and the tax bracket into which you fall. For some people with a traditional IRA, it's hard to pay the income tax on the withdrawn amount, so cashing out sometimes depends on your current financial situation. This is not as problematic with a Roth IRA, because your withdrawals are not penalized after age 59 1/2 and are tax-free, but even Roth IRAs can accrue penalties if you try to cash out part of the IRA early.

Reason for Cashing Out

The IRS wants you to use your IRA money for your retirement expenses, but it allows a handful of exceptions to penalties. For instance, you can withdraw early without penalty for educational purposes or to put money toward a first house. Thus, the reason why you are cashing out part of the IRA matters.