IRA accounts themselves do not "mature"; however, investments within your IRA may have maturity dates. Generally, this would be CDs or bonds. Both of these investments earn a specified amount of interest until the maturity date. At that point the owner is entitled to the entire principal plus any accumulated interest and can withdraw mature IRA funds.
Read More: What are the Penalties for Taking Money Out of an IRA?
Early Withdrawal Rules
If you have not yet turned age 59 1/2 when your IRA CD or bond reaches maturity, and you want to withdraw the maturity value, you will be charged a 10 percent penalty. If your account is a Roth IRA, it must have also been open for at least five years.
Here are a few exceptions that allow you to make early withdrawal from your IRA without paying the penalty. You may use the money to pay for college or other post-secondary school for either yourself or your child. You may also use the money to pay for your first home or to pay medical expenses that are more than 10 percent of your adjusted gross income.
Income Tax Owed
If the money comes from a traditional IRA, and you claimed a deduction for it when you contributed to the IRA, you will need to pay income tax on the withdrawn amount. Income tax is determined based on your current tax bracket. Withdrawing a significant sum of money from your IRA can push you into a higher bracket.
If the money comes from a Roth IRA, you've already paid income tax on you contributions, so you will only owe tax on the interest you earned on your CD or bond.
Taking Retirement Distributions
There is no penalty if you take the money from a mature IRA CD or bond once you have reached retirement age 59 1/2. In the case of a CD you will have to time your withdrawal carefully. Banks often automatically renew CDs after a certain grace period if you have not instructed them to do otherwise. In this case, withdrawing the rolled over CD may require you to pay a penalty.
Read More: How Much Can I Take Out of My Roth IRA Without Penalty?
Renewing the CD
Once the IRA investment matures, you can also decide to leave the money in the account and renew your CD or purchase a new bond with the principal and interest. Depending on your age and the type of IRA – traditional or Roth – another long-term investment may not make sense.
If your IRA is a traditional IRA you will be required to begin making required minimum withdrawals, based on your life expectancy, at age 72. For that reason, you may prefer to keep your money is something more liquid. Roth IRAs do not require minimum withdrawals, however, if you are planning to make withdrawals in the near term, the same would apply.
Other Options for Funds
Once a CD or bond in a IRA matures, you can decide to leave the money in the IRA without re-investing it. The money may then transfer to an IRA savings account. If you are still years away from retirement and are willing to take a risk in exchange for a higher return, you may roll the money in the IRA CD over into a mutual fund IRA or individual stocks. You may earn more money this way, but you will also take on more risk.
