10 Reasons Why People Cash Out IRAs after 60 Days

While in active service, you are expected to make some contribution to your Individual Retirement Account (IRA).

Just imagine it a magic piggy bank that grows faster the longer you leave it untouched. But medical bills, car repairs, or home emergencies can feel like financial earthquakes.

If you get tempted to withdraw during financial turbulent times, what happens? Do you lose a huge percentage to penalties? Or is there are way to boycott charges for withdrawing too early?

This article explains in detail what happens when you cash out IRAs after 60 days. You will also discover 10 possible reasons you may want to cash out earlier than you thought.

What is an IRA?

An Individual Retirement Account (IRA) is a tax-advantaged account that helps you save for retirement. Contributions you make to an IRA may be tax-deductible, and your investments grow tax-free or tax-deferred until you withdraw them in retirement.

An Individual Retirement Account (IRA) is a tax-advantaged account that helps you save for retirement. Contributions you make to an IRA may be tax-deductible, and your investments grow tax-free or tax-deferred until you withdraw them in retirement.

There are two main types of IRAs: traditional and Roth. Contributions made to a traditional IRA may be tax-deductible, which means you can lower your taxable income for the year you contribute. Your investments grow tax-deferred, but you will pay taxes on the money you withdraw in retirement.

Contributions you make to a Roth IRA are not tax-deductible, but your investments grow tax-free. This means you won’t pay taxes on the money you withdraw in retirement, including any earnings.

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What are the rules for withdrawing from an IRA?

The rules for withdrawing from an IRA depend on a few key factors: your age, type of IRA, and reason for withdrawal.

You can withdraw money penalty-free to pay for qualified education expenses for yourself, your spouse, children, or grandchildren. Also, you can withdraw up to $10,000 penalty-free to use toward the purchase of a first-time home.

Disability, medical expenses, and death are other reasons you are allowed to cash out IRA penalty-free.

Below are the other rules regarding withdrawing from an IRA:

Age:

• Before 59 ½: Generally, withdrawing money from an IRA before age 59 ½ triggers a 10% early withdrawal penalty on top of income taxes for the withdrawn amount (unless you qualify for an exception).
• 59 ½ and over: After reaching 59 ½, you can take penalty-free withdrawals from both contributions and earnings from a traditional IRA. However, the withdrawn amount will still be taxed as income.
• Roth IRAs: You can withdraw contributions from a Roth IRA penalty-free at any time. However, early withdrawals of earnings before 59 ½ still incur taxes and the 10% penalty.

Type of IRA:

• Traditional IRAs: As mentioned above, early withdrawals incur penalties unless you qualify for an exception. Contributions can be withdrawn penalty-free at any time, but not earnings.
• Roth IRAs: Contributions can be withdrawn penalty-free at any time, but early withdrawals of earnings still incur taxes and the 10% penalty.

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Can cashing out IRA after 60 Days be Penalty Free?

No, cashing out an IRA after 60 days is not penalty-free, unless you meet specific exceptions. The 60-day rule applies to rollovers between IRAs, not withdrawals and redeposits.

If you move money from one IRA to another within 60 days, it’s considered a rollover and avoids taxes and penalties. This allows you to consolidate accounts or switch investment strategies.

However, if you take money out of your IRA and keep it, it’s considered a withdrawal and triggers taxes and penalties, regardless of the timeframe. The 10% early withdrawal penalty applies if you are under 59 ½ unless you qualify for an exception like qualified education expenses, first-time home purchase, or disability.

To avoid penalties and taxes when accessing your IRA funds, wait until you reach age 59 ½: This eliminates the early withdrawal penalty, although income taxes will still apply to any withdrawn earnings.

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9 Ways to cash out IRA without penalty anytime after 60

To cash out IRA without penalty anytime before 60 appears to be impossible. Basically, you won’t be responsible for taking money out of your IRA until you turn 72. But you can start making penalty-free withdrawals after age 59½.

Consider these 9 routes to cashing out IRA without penalty:

#1. Wait until age 59 ½

This is the simplest and safest option. Once you reach this age, you can withdraw contributions and earnings from a traditional IRA without penalty, although taxes will still apply to earnings.

#2. Roth Conversions

Converting a traditional IRA to a Roth IRA allows you to pay taxes upfront on the converted amount and then access the funds penalty-free in the future (including earnings) after a 5-year waiting period. However, this strategy involves paying taxes on your existing IRA balance, potentially bumping you into a higher tax bracket.

#3. Qualified Education Expenses

You can withdraw funds penalty-free for qualified education expenses for yourself, your spouse, children, or grandchildren. This includes tuition, fees, books, and supplies. However, there are limitations on the types of expenses and institutions that qualify.

#4. First-Time Home Purchase

You can withdraw up to $10,000 penalty-free for a first-time home purchase. This applies to both traditional and Roth IRAs, but only for the first-time purchase of a primary residence.

#5. Disability

If you become disabled, you can withdraw money from your IRA penalty-free. This requires documentation from a medical professional and proof of your disability.

#6. Medical Expenses

You can withdraw money penalty-free to cover medical expenses that exceed 7.5% of your adjusted gross income. This applies to both traditional and Roth IRAs, but only for unreimbursed medical expenses.

#7. Substantially Equal Periodic Payments (SEPPs)

This strategy allows you to withdraw a portion of your IRA over at least 5 years or until you reach age 59 ½, without incurring the penalty. However, there are strict rules and calculations involved, and you must commit to the withdrawal schedule.

#8. Death Beneficiary

If you die, your beneficiary can receive your IRA funds without penalty. This emphasizes the importance of naming a beneficiary for your IRA.

#9. Rollovers

While not exactly “cashing out,” rollovers allow you to transfer funds between IRAs without penalty or taxes. This can be helpful if you want to consolidate accounts or change investment options. However, rollovers are not the same as withdrawals and don’t allow you immediate access to the funds.

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At what age can you withdraw your IRA without penalty?

You can access your Individual Retirement Account (IRA) funds penalty-free once you reach age 59 ½. This means you can withdraw both contributions and earnings you’ve accumulated without incurring the 10% early withdrawal penalty.

However, you will still owe income taxes on the earnings you withdraw if it is a traditional IRA. With a Roth IRA, you can withdraw both contributions and earnings tax-free at any age, as long as you’ve held the account for at least 5 years. This makes Roth IRAs a great option for younger investors who are looking for tax-free growth and access to their money in the future.

How to calculate age 59 1 2 for IRA withdrawal?

You don’t need to count days or fractions of a day. You only need to consider the full calendar date. This method involves calculating your exact age in half-years. Here’s how:

• Identify your current year: This is the year you’re making the calculation.

• Identify your birth year: This is the year you were born.

•  Understand the Rationale Behind Age 59 1/2: The 59 ½ age threshold for penalty-free IRA withdrawals stems from Internal Revenue Service (IRS) regulations. Early withdrawals before this age incur a 10% penalty alongside income tax on the withdrawn amount. Reaching 59 ½, however, unlocks penalty-free access to your retirement savings.

• Calculate your half-birthday: Turning 59 1/2 isn’t just about the years, it’s about the calendar day! To find your penalty-free IRA access date, add six months to your birthday. Easy as pie! So, if you were born on March 16th, mark September 16th on your calendar – that’s your golden ticket to penalty-free withdrawals.

• Calculate Your Age of Eligibility – The Day You Turn Age 59½: Got your half-birthday? Now, grab your birth year and add 59 ½! For example, a March 16, 1980, birthday means a September 16th half-birthday. Mark that date, because it’s your penalty-free passport to your IRA!

• Age of Eligibility: March 16, 1980+ 59 years & 6 months = September 16, 2039

Can I close my IRA and take the money?

Closing your IRA and taking out the money is a significant financial decision that should be carefully considered before taking action. It comes with some consequences.

For instance, if you’re under 59 ½ years old, closing your IRA and withdrawing the funds will generally trigger a 10% early withdrawal penalty on top of the income taxes you’ll owe on the earnings. This can significantly reduce the amount of money you receive.

Even if you’re over 59 ½, closing your IRA and withdrawing the earnings will still result in income taxes. The amount you’ll owe will depend on your tax bracket and the type of IRA you have (traditional or Roth).

Furthermore, closing your IRA means giving up the potential for tax-deferred or tax-free growth on your retirement savings. This can significantly impact your long-term financial security.

Unless you have a pressing need for the money, it’s generally best to leave your IRA open and continue saving for retirement. 

Can I cash out my IRA at age 80?

Yes, you can absolutely cash out your IRA at age 80 without any penalty. In fact, once you reach age 59 ½, you can withdraw any amount from your IRA (contributions and earnings) without incurring the 10% early withdrawal penalty.

However, your withdrawn earnings will still be taxed as income at your current tax bracket. This could potentially bump you into a higher tax bracket depending on the amount you withdraw.

Also,  cashing out your IRA means giving up the potential for tax-deferred or tax-free growth on your retirement savings.

What to do with IRA after retirement?

Once you retire, your IRA enters a new phase. Its purpose shifts from accumulating funds to providing steady income for your golden years. Below are sustainable ideas on what to do with your IRA after retirement:

#1. Maintain a Systematic Withdrawal Plan:

• Required Minimum Distributions (RMDs): Starting at age 72 (73 for those born after 1951), you must take RMDs from your traditional IRA to avoid tax penalties. Tools and calculators can help determine your minimum withdrawal amount.
• Systematic Withdrawals: Beyond RMDs, consider creating a personalized withdrawal plan to ensure your IRA lasts throughout your retirement. This could involve a fixed percentage withdrawal, adjusting based on inflation, or adapting to your changing needs.

#2. Consider Conversion Options:

• Roth Conversion: Converting a traditional IRA to a Roth IRA lets you pay taxes upfront on the converted amount but then access the funds penalty-free and tax-free in the future (including earnings) after a 5-year waiting period. This can benefit you if you expect lower tax rates in retirement.
• Qualified Charitable Distributions (QCDs): If you’re 70 ½ or older, you can directly donate up to $100,000 from your IRA to qualified charities and exclude that amount from your taxable income. This can be a tax-efficient way to support your favorite causes while reducing your IRA balance.

#3. Invest for Income:

• Shift your investment strategy: Consider shifting your IRA portfolio towards income-generating assets like dividend-paying stocks, bonds, and real estate investment trusts (REITs). This can provide a regular stream of income to supplement your other retirement income sources.
• Annuities: Explore fixed or variable annuities, which provide guaranteed income streams in exchange for a portion of your IRA assets. However, carefully research annuities and understand their fees and limitations before investing.

#4. Don’t Forget Your Beneficiaries:

• Review your beneficiary designations: Update your beneficiary information to ensure your IRA assets go to your intended beneficiaries after your passing. Consider naming multiple beneficiaries or contingent beneficiaries in case your first choice is unable to receive the funds.

Frequently Asked Questions

Conclusion

Your IRA is a valuable tool for ensuring your financial stability in retirement. The decision to cash out your IRA is a personal one, with no universally “right” answer.

Hence, it is important to consider all the potential consequences before cashing out IRA. This article reviews what cashing out IRA after 60 days looks like. Discover penalty free ways to cash out Individual Retirement Account.

References

• IRS.gov – IRA FAQs – Distributions (Withdrawals)
• Fool.com – IRA Withdrawals
• Usnews.com – 7 Things to Know About Withdrawing Money From a Traditional IRA