Closing out an IRA

[MonsoonMike]

Hi all. I'm new to the forums.

I currently hold a decent job with a decent retirement plan (*knocks wood*) through TIAA-CREF for the past five years. But prior to this job, I held a small job at a small family company with a retirement IRA through Primerica.

To this day, I still have that small pot of money from the IRA through Primerica separate from the current retirement plan I have. I guess I should try and have it rolled into my current plan, but my question is that I could really use the money in the IRA for an emergency expense I've had to pay yet I know that you pay through the nose in penalties if you close out an IRA early. I would never think of touching my current retirement plan, but I am considering closing the IRA thinking little harm could be done since it's sitting there alone and separate anyway.

My question is: is this a good idea? I have a few thousand in the IRA. How much in penalties will I pay? I also heard that you get nailed with taxes, too, but what's that mean? The taxes come right out of the IRA closeout, or it hurts my refund at tax time next year?

Sorry if some of these are dumb questions, but I thought you guys may be able to help. Thanks in advance.

[buildmybudget]

Unless you need the money for an emergency, you should leave it there. It doesn't matter that it's sitting "alone" as long as it's invested in diversified mutual funds that are aligned with your risk tolerance. In addition to any fees for closing the account, you will pay at least a 10% penalty. Is it a traditional or Roth Ira? The amount of tax you'll pay depends on the type of Ira.

I recommend setting and forgetting-- make sure it's invested properly and then forget about it until retirement!

[creditcardfree]

I completely agree that it should not be used for this 'emergency'. If absolutely necessary, stop current contributions to come up with the cash. Of course, look at lowering expenses, or selling something else of value before that.

Technically, when you withdraw the funds, the company will hold 20% for taxes...like withholding on your check. At the time you file, the gross withdrawal will be taxed at your ordinary income tax rate, and the 10% penalty will be figured. If your withholding from the transaction and your job do not cover your taxes you will owe on your federal return.

But...don't do it. It just puts you that much further behind in funding your retirement.

[MonsoonMike]

Thanks for the advice. To answer the question as to the kind of IRA, it is a "simple IRA." So wow, if this IRA just has a few thousand in it, by the time I pay the penalties then the taxes, I'd probably be lucky to get about half. In addition to the penalties, how much do you think I'd owe on my federal return for this? I guess I'll just ride it out and come up with the cash elsewhere!

[GREENBACK]

the penalties, how much do you think I'd owe on my federal return for this?

I believe it's taxed as regular income. If you can investy in this plan and have a lot more investment choices than your current employers plan then that would seem to be the right move. If not, maybe you can rollover to another type of IRA. Whatever you do, I certainly think just closing it out will hurt you badly.

[creditcardfree]

Thanks for the advice. To answer the question as to the kind of IRA, it is a "simple IRA."

A Simple IRA withdrawal is completed the same as a traditional IRA, as explained before.

I guess I'll just ride it out and come up with the cash elsewhere!

Great idea!!