Can I Transfer My IRA to a Savings Account? Taxes, Penalties, Rollovers

You can move money out of an IRA and into a regular savings account, but the IRS does not treat it as a transfer. It’s a distribution. Every dollar leaving a traditional IRA counts as ordinary income that year, and if you’re under 59½ the IRS adds a 10% early withdrawal penalty on top. Between federal tax, state tax, and the penalty, a third or more of the balance can disappear before it lands in your bank account. Roth IRAs, exceptions to the penalty, and the 60-day rollover rule can change that math, so it’s worth knowing exactly what applies before you move any money.

What a Traditional IRA Withdrawal Actually Costs

Every dollar distributed from a traditional IRA gets added to your gross income for the year.¹ The withdrawal stacks on top of your wages and other income, then gets taxed at your ordinary federal rate. Federal rates in 2026 run from 10% to 37%.² A large withdrawal can push you into a higher bracket than you’d otherwise sit in.

Most states tax IRA distributions as ordinary income too, with top rates running from roughly 2.5% to over 13%. Combine federal and state taxes and expect somewhere between 15% and 50% of a sizable distribution to go to taxes alone.

If you’re under 59½, the IRS adds a 10% tax on the taxable portion of the distribution.³ It’s calculated on the full amount withdrawn, not on the net that hits your account. A 40-year-old in the 24% federal bracket who pulls $100,000 from a traditional IRA faces roughly $24,000 in federal income tax plus a $10,000 penalty, before state taxes. That $100,000 can shrink to $60,000 or less.

Your custodian reports the distribution to the IRS on Form 1099-R, so there is no version of this that stays off the government’s radar.⁴

Roth IRAs Follow Different Rules

Roth IRAs are more forgiving because you already paid income tax on the money before contributing. Federal law sets an ordering rule: distributions come out of your contributions first, then any converted amounts, and finally earnings.⁵ You can pull your original contributions out at any time, at any age, with no tax and no penalty.

Earnings are the complicated part. For a withdrawal of Roth earnings to come out completely tax-free and penalty-free, two things must both be true: you’ve reached age 59½, and the account has been open at least five tax years.⁵ Over 59½ but not yet five years in the account? Income tax on the earnings, no penalty. Under 59½ with the five-year clock still running? Income tax and the 10% penalty on the earnings portion.

So if you’ve contributed $40,000 to a Roth and the account is now worth $55,000, up to $40,000 can come out no matter what. The $15,000 in earnings is where the age and timing rules apply.

Exceptions to the 10% Early Withdrawal Penalty

The 10% penalty has a long list of exceptions. They don’t eliminate income tax on a traditional IRA distribution, but skipping the penalty alone can save thousands. The most commonly relevant ones:

Unreimbursed medical expenses above 7.5% of your adjusted gross income.
First-time home purchase, up to $10,000 over your lifetime.
Qualified higher education costs for you, your spouse, or dependents.
Health insurance premiums while unemployed, if you received unemployment for at least 12 weeks.
Total and permanent disability of the account owner.
Substantially equal periodic payments spread over your life expectancy (72(t) payments).
Birth or adoption, up to $5,000 per child.
Federally declared disaster, up to $22,000 per qualifying disaster.
Domestic abuse victim, up to the lesser of $10,000 or 50% of the account balance.
Emergency personal expense, one distribution per calendar year up to $1,000.

Each exception has its own documentation requirements, and you have to report it correctly on your tax return.⁶ The IRS won’t assume you qualify. You have to claim it.

The 60-Day Rollover if You Only Need the Money Temporarily

If you need IRA money briefly rather than permanently, a 60-day rollover lets you take a distribution and avoid all taxes, as long as you redeposit the full amount into a qualified retirement account within 60 days.¹ Day 61 is the cliff. Miss it and the full amount becomes taxable income, plus the penalty if you’re under 59½.

You can only do this once per 12-month period across all your IRAs combined. The IRS aggregates every traditional, Roth, SEP, and SIMPLE IRA you own when applying the limit.⁷ Trustee-to-trustee transfers between IRAs don’t count against this limit because the money never touches your hands.

The Withholding Trap

Here’s where people get burned. When your custodian sends the distribution check, they typically withhold 10% for federal taxes unless you elect otherwise on Form W-4R.⁸ Say you took $50,000 out and $5,000 was withheld. You received $45,000. To complete a full rollover with zero tax, you have to deposit $50,000 back into a retirement account within 60 days, which means covering the withheld $5,000 out of pocket.⁷ You get the withheld amount back as a refund at tax time, but you need the cash upfront or that $5,000 stays taxable.

Side Effects Beyond the Tax Bill

Taxes and penalties aren’t the only costs. A large IRA withdrawal can raise your Medicare premiums for two years and wipe out health insurance subsidies for the current year.

Medicare uses your modified adjusted gross income from two years earlier to set premiums. If a distribution pushes your income above $109,000 for an individual (or $218,000 for joint filers), you pay income-related monthly adjustment amounts on top of the standard Part B and Part D premiums. The surcharges rise in tiers. A single filer whose income lands between $171,000 and $205,000 pays $527.50 a month for Part B in 2026 instead of the standard $202.90, more than double.⁹ Part D drug coverage gets its own surcharge on the same scale.

If your coverage runs through the Affordable Care Act marketplace, premium tax credits are based on your modified adjusted gross income, which includes taxable IRA distributions. A large enough withdrawal can push household income above 400% of the federal poverty level and eliminate the subsidy entirely for the year.

If You’re 73 or Older, Some of This Is Mandatory

Traditional IRA owners who have reached age 73 are required to withdraw a minimum amount each year, called a required minimum distribution.¹⁰ If you’re at or past that age and moving IRA money into savings, part or all of what you’re withdrawing may be something you have to take anyway.

The penalty for missing an RMD is steep: 25% of what you should have withdrawn but didn’t. That drops to 10% if you fix the shortfall within the correction window, which is generally two years.¹¹ RMDs don’t apply to Roth IRAs during the original owner’s lifetime.

How to Actually Move the Money

Once you’ve decided to withdraw, the mechanics are straightforward.

Most custodians take a distribution request either through their online portal or on a paper form. You’ll need your IRA account number and the routing and account numbers for the destination savings account. The form will ask for a federal tax withholding election on IRS Form W-4R. Leave it blank and the custodian withholds 10% of the taxable amount by default.⁸ You can pick anywhere from 0% to 100%, but under-withholding means a bigger bill in April.

State withholding is separate. About a dozen states mandate withholding on IRA distributions regardless of your preference. Others make it voluntary or tie it to your federal election. Check with your custodian for your state’s rule.

The full process usually takes one to two weeks. Administrative review runs three to five business days. If your IRA holds stocks or mutual funds rather than cash, those have to be sold first, and trades need another one to two business days to settle. Electronic transfers to savings are faster and easier to track than a mailed check.

Many custodians charge an account closing or outgoing transfer fee, typically $25 to $100. Once the money arrives, check that the net matches your expected gross minus withholding. Any discrepancy is easier to sort out before year-end than during tax season. You’ll receive a Form 1099-R early the following year showing the distribution, and you’ll need it to file your return.¹²

1
Office of the Law Revision Counsel. 26 USC 408 – Individual Retirement Accounts
2
Internal Revenue Service. Federal Income Tax Rates and Brackets
3
Office of the Law Revision Counsel. 26 USC 72 – Annuities; Certain Proceeds of Endowment and Life Insurance Contracts
4
Internal Revenue Service. Instructions for Forms 1099-R and 5498
5
Office of the Law Revision Counsel. 26 USC 408A – Roth IRAs
6
Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions
7
Internal Revenue Service. Rollovers of Retirement Plan and IRA Distributions
8
Internal Revenue Service. 2026 Form W-4R – Withholding Certificate for Nonperiodic Payments and Eligible Rollover Distributions
9
Centers for Medicare & Medicaid Services. 2026 Medicare Parts A and B Premiums and Deductibles
10
Internal Revenue Service. Retirement Plan and IRA Required Minimum Distributions FAQs
11
Office of the Law Revision Counsel. 26 USC 4974 – Excise Tax on Certain Accumulations in Qualified Retirement Plans
12
Internal Revenue Service. About Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.