What Is the Penalty for Cashing Out an IRA?
Traditional IRAs These IRAs allow an income earner to contribute income to an account and have the contributions reduce the amount of overall income for the year in which they were made. This reduces tax liabilities. Penalties If an owner takes premature withdrawals before age 59 1/2, the amount of the withdrawal is treated as ordinary income and will be taxed at the ordinary income rate and will be assessed a 10 percent penalty on the amount withdrawn. Roth IRAs Since Roth IRA contributions are funded with no tax benefit (with after tax dollars), the penalties for early withdrawal differ somewhat. Penalties Roth IRAs lose their tax-advantaged status if withdrawn before age 59 1/2 and also face the 10 percent penalty. However, contributions can be taken out since they were previously taxed but earnings on them while in the IRA will be taxed/penalized. Exceptions As always, consult a tax professional first, but examples of tests that allow exclusion from penalties are hardship, extreme
