Traditional Individual Retirement Accounts can be cashed out at any time by contacting the IRA's account custodian, according to SF Gate. The distribution can be for the entire balance or a percentage. The method of payment differs by custodian, the most common forms are electronic transfer or written checks.Continue Reading
Individuals under the age of 59 1/2 are required to pay regular income taxes and a 10 percent early-withdrawal tax penalty on all distributions, explains SF Gate. Individuals under the age of 59 1/2 need to notify their account custodian that they wish to take an early withdrawal. These individuals must also be prepared to pay the taxes and penalty, which are due on the tax return for the year of the distribution. Certain exemptions apply to the 10 percent rule.
For tax purposes, Roth IRAs are treated differently than traditional IRAs, notes SF Gate. Early withdrawals from Roth IRAs are not subject to a tax penalty, but the earnings withdrawn from Roth IRAs are considered taxable income in the year they are withdrawn. The Internal Revenue Service orders withdrawals from IRAs so that the first dollars withdrawn are considered part of the principle. Once the principle amount has been depleted, the remaining dollars withdrawn are considered earnings for tax purposes. This minimizes the tax impact on partial Roth IRA withdrawals.Learn more about Financial Planning