Can You Cash Out a Traditional IRA?

Can You Cash Out a Traditional IRA?
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Contrary to rumors, you're always allowed to cash out the money in your traditional IRA -- you even don't need a gut-wrenching story of financial hardship. But, you might need to share more of your withdrawal with Uncle Sam if you're not yet 59 1/2 years old. See, 59 1/2 is that magical age when distributions from your traditional IRA become "qualified." At that point, you don't have to worry about the 10 percent early withdrawal tax penalty anymore. Even if you aren't 59 1/2, however, you might still get off penalty-free if you qualify for one of the early withdrawal exceptions.

Request a distribution for the balance of your account from your traditional IRA by completing an IRA withdrawal request form. These forms are different for each financial institution, so you need to request one from your financial institution or download one from its website. On the form, you must typically include your name, Social Security number, account information and how much you want to take out.

Report the amount of your traditional IRA withdrawal as a taxable IRA distribution on either line 11b of Form 1040A or line 15b of Form 1040. This amount adds to your taxable income for the year. But, if you're under age 59 1/2, you must use Form 1040.

Complete Form 5329 if you're under 59 1/2. This form figures your early withdrawal tax penalty after accounting for any exceptions. For example, say you took out $10,000, but paid $8,000 of college tuition, an exception to the penalty. Using Form 5329, you calculate your penalty as only $200 -- 10 percent of the $2,000 that isn't exempt.

Copy the penalty, if any, to line 58 of Form 1040. This amount adds to your tax bill for the year. For example, if you owe a $200 penalty, your refund goes down by $200.


  • Exceptions to the early withdrawal penalty for traditional IRAs also include medical premiums when you're receiving unemployment, up to $10,000 for a first home, taking distributions as a beneficiary from an inherited IRA or after suffering a permanent disability.

    At the end of the year, your bank sends you a Form 1099-R that tells you how much you took out of your traditional IRA during the year.