Can You Close a Roth IRA: Penalties, Exceptions, and Rollovers

Yes, you can close a Roth IRA whenever you want. No age minimum, no government approval, no permission from your custodian. What varies is the cost: closing means liquidating everything inside, taking the cash out, and having the account marked closed, and whether the IRS takes a cut depends on your age, how long the account has been open, and how much of the balance is growth rather than the money you originally put in.

What Comes Out First When You Empty the Account

The IRS doesn’t treat your withdrawal as one undifferentiated lump. It stacks the dollars leaving the account in a fixed order:¹

Your regular contributions come out first. You already paid income tax on these dollars before they went in, so pulling them back out is never taxed and never penalized, at any age, no matter how new the account is.
Conversions and rollovers come out next, on a first-in, first-out basis. Within each conversion, the taxable portion comes out before the nontaxable portion.
Earnings come out last. Dividends, interest, and capital gains generated inside the account sit at the bottom of the stack, and they’re the layer that can trigger tax and penalty.

This ordering works in your favor if the account hasn’t grown much. Contribute $30,000 over the years into an account now worth $32,000, and only that $2,000 of growth is exposed. The $30,000 comes out clean.

When Earnings Come Out Tax-Free

For the earnings portion to escape both tax and penalty, the withdrawal has to be a “qualified distribution.” Two conditions have to be true at the same time: you’re at least 59½, and your Roth IRA has been open for at least five tax years.²

The five-year clock starts on January 1 of the tax year you made your very first Roth contribution. Contribute in April 2022 for tax year 2021, and the clock actually started January 1, 2021, meaning the five years finish on December 31, 2025.¹

The clock attaches to you, not to any particular account. The statute ties it to “the first taxable year for which the individual made a contribution to a Roth IRA.”² Close one Roth and open another later, and you don’t start over.

Two other situations count as qualified even before age 59½, as long as the five-year rule is still satisfied: you become permanently disabled, or the distribution goes to a beneficiary after your death.²

What Closing Early Actually Costs

Close before you meet both the age and five-year tests, and the earnings piece becomes a non-qualified distribution. Two things happen to those earnings.

First, they get added to your ordinary taxable income for the year and taxed at your regular federal bracket rate.³ State income tax may apply on top.

Second, if you’re under 59½, the IRS adds a 10% penalty on those same earnings.⁴ The penalty applies only to the earnings, not the whole distribution, because your contributions came out tax-free under the ordering rules. You calculate and pay the penalty using Form 5329 with your tax return.⁵

Put numbers on it. In the 24% bracket, pulling $5,000 in earnings before 59½ costs $1,200 in income tax plus a $500 penalty. That’s $1,700 out of $5,000.

Exceptions That Wipe Out the 10% Penalty

Several situations let you skip the 10% penalty on earnings taken before 59½. Ordinary income tax still applies to earnings from a non-qualified distribution, but the penalty piece drops off. The most useful exceptions:⁵

Permanent disability — a physical or mental condition expected to result in death or last indefinitely that prevents any substantial gainful activity.⁶
First-time home purchase, up to a $10,000 lifetime cap toward buying, building, or rebuilding a first home.⁷
Qualified higher education expenses for you, your spouse, or dependents at eligible institutions — tuition, fees, books, and room and board.
Unreimbursed medical expenses that exceed 7.5% of your adjusted gross income.
Health insurance premiums while unemployed, after you’ve received unemployment compensation for at least 12 consecutive weeks.⁵
Birth or adoption of a child, up to $5,000 per parent within one year of the birth or the adoption being finalized.⁸
Terminal illness, after a physician certifies a condition reasonably expected to result in death within 84 months.

SECURE 2.0 added two more exceptions for distributions made after December 31, 2023:⁵

Emergency personal expenses — one distribution per calendar year, up to $1,000 (or your vested balance above $1,000, if less). If you don’t repay within three years, you can’t take another emergency distribution during that period.
Domestic abuse victims — up to the lesser of $10,000 (indexed for inflation) or 50% of the account balance, taken within one year of the abuse.

If your 1099-R doesn’t already reflect an exception you qualify for, you claim it on Form 5329 by entering the correct exception code.⁵

Move It Instead of Closing It

If you actually want to switch brokerages, not cash out, don’t close the account. Ask the new custodian for a direct trustee-to-trustee transfer. The money moves institution to institution without passing through your hands, and the IRS doesn’t treat it as a distribution at all.⁹

Direct transfers have two advantages over pulling the cash and re-depositing it yourself. Nothing gets withheld for taxes, and the once-per-year rollover limit that applies to indirect (60-day) rollovers doesn’t apply. You can also transfer holdings “in kind,” meaning your stocks, bonds, and funds move as-is rather than being sold, though some proprietary products may not transfer and would need to be liquidated or left behind.¹⁰

If you do take the cash yourself and then decide to redeposit, you have 60 days to put it into another Roth IRA. Miss the window and the earnings portion is taxable. You’re also limited to one such indirect rollover across all your IRAs, traditional and Roth combined, in any 12-month period.⁹

How to Actually Close the Account

Before you contact the custodian, pull together your account number, a government-issued photo ID for identity verification, and, if the money is going to another institution, the receiving custodian’s name and your account details there. Most custodians require their own distribution or account closure form, available through the website or by calling customer service.

On the form you pick how to receive the money, usually ACH or a mailed check, and whether you want federal or state tax withheld. Choosing zero withholding doesn’t reduce what you owe; it just moves payment to when you file. Watch the fee schedule too. Account closure or outbound transfer fees commonly land somewhere between $50 and $125.

Once you submit the form, the custodian sells your holdings so everything becomes cash. Equity and ETF trades settle in one business day under the current T+1 cycle.¹¹ Mutual funds may take a day or two longer. After settlement, the cash goes out by ACH or check, the account is marked closed, and you get a confirmation notice. Start to finish usually runs one to two weeks.

Tax Forms You’ll See Later

By January 31 of the following year, your custodian sends you Form 1099-R showing the gross distribution, any taxable earnings, and any federal tax withheld.¹² You use it to prepare your return.

If the distribution includes any earnings, even a fully tax-free one, you file Form 8606 with your return to track your contribution basis and calculate any taxable portion.¹³ Keep the copies. The IRS recommends retaining them to verify the nontaxable portion of future IRA distributions.

If you owe the 10% early withdrawal penalty, or if you qualify for an exception the 1099-R didn’t reflect, that gets reported on Form 5329 attached to your return.⁵

1
Internal Revenue Service. Publication 590-B (2025), Distributions from Individual Retirement Arrangements (IRAs) – Section: Ordering Rules for Distributions
2
Office of the Law Revision Counsel. 26 USC 408A – Roth IRAs
3
Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026
4
Office of the Law Revision Counsel. 26 USC 72 – Annuities; Certain Proceeds of Endowment and Life Insurance Contracts – Section: 10-Percent Additional Tax on Early Distributions
5
Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions
6
Office of the Law Revision Counsel. 26 USC 72 – Annuities; Certain Proceeds of Endowment and Life Insurance Contracts – Section: Meaning of Disabled
7
Office of the Law Revision Counsel. 26 USC 72 – Annuities; Certain Proceeds of Endowment and Life Insurance Contracts – Section: Distributions for First Home Purchases
8
Internal Revenue Service. Publication 590-B (2025), Distributions from Individual Retirement Arrangements (IRAs)
9
Internal Revenue Service. Rollovers of Retirement Plan and IRA Distributions
10
U.S. Securities and Exchange Commission. Transferring Your Brokerage Account – Tips on Avoiding Delays
11
Investor.gov. New T+1 Settlement Cycle – What Investors Need To Know
12
Internal Revenue Service. 2025 Instructions for Forms 1099-R and 5498
13
Internal Revenue Service. Instructions for Form 8606 (2025)