You can close an IRA account at any time by contacting your custodian and requesting a full distribution. The real question is what it costs. If you’re under 59½ and cash out a traditional IRA, the taxable amount is treated as ordinary income for the year and hit with an additional 10% early withdrawal penalty. After 59½ the penalty goes away, but the full balance still lands on your tax return as income. A rollover into another IRA or an employer plan avoids both consequences, so the first decision is whether you actually need the money or just want it in a different account.
How to Close the Account
Contact your custodian, whether that’s a brokerage, bank, or mutual fund company, and ask for a distribution request form. You’ll need your account number, Social Security number, and the completed form, which is usually available through the online portal or by phone. The form asks whether you want a full distribution or a partial withdrawal, and whether the funds should go to you or directly to another retirement account.
If the IRA holds stocks, bonds, or mutual funds, the custodian sells those positions before sending cash, which can take a few business days. Some custodians charge an account closure fee. Once holdings are liquidated and any fees deducted, the remaining balance is sent by direct deposit or mailed check. Start to finish usually runs one to two weeks.
For large balances, the custodian may require a Medallion Signature Guarantee, a specialized stamp from a participating bank or credit union that verifies your identity and signature. Many institutions won’t process a high-value request without one. The threshold varies by custodian.
Rollover or Cash-Out
If you’re moving the money to another IRA or an employer plan like a 401(k), a direct rollover (also called a trustee-to-trustee transfer) avoids all taxes and penalties. The funds move from one custodian to the other without touching your hands, and the IRS doesn’t treat the transfer as a distribution.1Internal Revenue Service. Rollovers of Retirement Plan and IRA Distributions Nothing is withheld, and the full balance keeps working in a tax-advantaged account.
An indirect rollover is riskier. The custodian sends the money to you, withholds 10% for federal taxes by default, and you have 60 days to deposit the funds into another qualified retirement account.2Internal Revenue Service. Publication 590-A, Contributions to Individual Retirement Arrangements (IRAs) Miss the 60-day window and the entire amount becomes a taxable distribution, plus the 10% penalty if you’re under 59½. Here’s the part that trips people up: the custodian already withheld 10%, so to roll over the full original balance you have to come up with that withheld amount out of pocket and deposit it along with the check. Whatever you don’t redeposit within 60 days is treated as a withdrawal.
You’re also limited to one indirect IRA-to-IRA rollover in any 12-month period across all your IRAs. Direct trustee-to-trustee transfers don’t count toward that limit, which is another reason to choose the direct route.1Internal Revenue Service. Rollovers of Retirement Plan and IRA Distributions
Tax Withholding on a Cash Distribution
If you close the IRA and take the cash, the custodian is required to withhold federal income tax. For a lump-sum closure, which the IRS classifies as a nonperiodic distribution, the default withholding rate is 10% of the taxable amount. You report your choice on IRS Form W-4R, which lets you pick any withholding rate from 0% to 100%.3Internal Revenue Service. 2026 Form W-4R, Withholding Certificate for Nonperiodic Payments and Eligible Rollover Distributions You can elect zero withholding if you’d rather handle the tax bill at filing time, as long as you set aside enough to cover it.
The 10% default is a prepayment, not the tax itself, and it often isn’t enough. The distribution stacks onto your other income for the year, and depending on your bracket you could owe 22%, 24%, or more. Many people are caught off guard the following April with a large balance due. On a sizable closure, consider raising the withholding rate on Form W-4R to match your expected bracket, or make an estimated tax payment in the quarter you receive the funds.
The 10% Early Withdrawal Penalty
Distributions from a traditional IRA before age 59½ are subject to a 10% additional tax on the taxable portion, on top of regular income tax.4Office of the Law Revision Counsel. 26 USC 72 – Annuities; Certain Proceeds of Endowment and Life Insurance Contracts On a $50,000 traditional IRA, the penalty alone is $5,000 before any income tax. Combined with federal and state taxes, closing early can easily eat a third of the account.
The IRS carves out several exceptions where the 10% penalty does not apply, even if you’re under 59½:5Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions
- Total and permanent disability.
- First-time home purchase, up to a $10,000 lifetime limit from IRA distributions.
- Higher education expenses for you, your spouse, or dependents, from IRA distributions.
- Unreimbursed medical expenses exceeding 7.5% of your adjusted gross income.
- Health insurance premiums while unemployed, after receiving unemployment compensation for at least 12 weeks.
- Substantially equal periodic payments based on your life expectancy, taken at least annually.
- IRS levy to satisfy a tax debt.
- Birth or adoption expenses, up to $5,000 per child.
- Federally declared disaster losses, up to $22,000.
- Domestic abuse victims, up to the lesser of $10,000 or 50% of the account, for distributions after December 31, 2023.
- Emergency personal expenses, up to $1,000 once per calendar year, for distributions after December 31, 2023.
These exceptions waive only the 10% penalty. The distribution is still taxable as ordinary income unless it comes from a Roth IRA and qualifies for tax-free treatment.
Closing a Roth IRA
Roth IRAs follow different tax rules because you funded them with after-tax dollars. You can withdraw your original contributions at any time, at any age, with no tax and no penalty. The IRS treats Roth distributions in a specific order: contributions come out first, then conversion amounts, then earnings.6Internal Revenue Service. Publication 590-B, Distributions from Individual Retirement Arrangements (IRAs) If your balance is close to or less than your total contributions, closing the Roth may cost nothing in taxes at all.
Earnings are different. To withdraw earnings tax- and penalty-free, you must be at least 59½ and the account must have been open for at least five years. Close a Roth before meeting both requirements and the earnings portion is subject to income tax and potentially the 10% penalty. The same exceptions listed above apply to the penalty on Roth earnings.
The practical upshot: because you already paid tax on the contributions, only the earnings portion creates a tax event. If you contributed $30,000 over the years and the account grew to $38,000, only the $8,000 in earnings is at risk. The $30,000 comes back to you free and clear regardless of your age.
SIMPLE and SEP IRAs
SIMPLE IRAs carry a trap. If you close or withdraw from a SIMPLE IRA within the first two years of participating in the plan, the early withdrawal penalty jumps from 10% to 25% on the taxable amount.7Internal Revenue Service. SIMPLE IRA Withdrawal and Transfer Rules The same 25% applies if you transfer a SIMPLE IRA to a non-SIMPLE IRA during that window. The two-year clock starts from the date your employer first deposited contributions into the SIMPLE IRA, not from when the account was opened. After two years, the standard 10% penalty applies.
SEP IRAs, once funded, belong entirely to the employee and follow the same withdrawal and penalty rules as traditional IRAs.
Closing an Inherited IRA
Inherited IRAs come with their own closure rules that depend on your relationship to the deceased and when they died.
A surviving spouse who is the sole beneficiary has the most flexibility. A spouse can roll the inherited IRA into their own IRA and treat it as if they had always owned it, which resets the distribution rules entirely.8Internal Revenue Service. Retirement Topics – Beneficiary Age-based rules for withdrawals, penalties, and required minimum distributions then apply as they would to any IRA owner. A spouse can also keep it as an inherited IRA and take distributions based on their own life expectancy.
Non-spouse beneficiaries who inherited an IRA after 2019 generally must empty the entire account within 10 years of the owner’s death.8Internal Revenue Service. Retirement Topics – Beneficiary If the original owner had already started taking required minimum distributions before death, the beneficiary must also take annual distributions during that 10-year period. If the owner died before reaching the age for required distributions, the beneficiary has more flexibility on timing within the window but must still empty the account by the end of the tenth year.
Inherited IRAs cannot be rolled over into the beneficiary’s own IRA except by a spouse, so a non-spouse beneficiary who closes an inherited IRA will trigger income tax on the distributed amount.9Office of the Law Revision Counsel. 26 USC 408 – Individual Retirement Accounts
In-Kind Distributions Instead of Selling
You don’t have to liquidate everything before closing. An in-kind distribution transfers securities directly from your IRA into a taxable brokerage account without selling the shares first. That can help if you hold investments you want to keep, especially during a market downturn when selling would lock in losses.
The IRS treats the fair market value of the transferred shares on the transfer date as your distribution amount and your new cost basis. You’ll owe income tax on that value just as you would on a cash distribution. The holding period for capital gains resets on the transfer date, so you’d need to hold the shares more than a year in the taxable account to qualify for long-term capital gains rates on any future appreciation.
Tax Reporting After Closure
Your custodian will issue Form 1099-R by January 31 of the year following the distribution. It reports the gross distribution amount in Box 1 and any federal income tax withheld in Box 4.10Internal Revenue Service. Instructions for Forms 1099-R and 5498 You need this form to file your federal return. If you completed a rollover, the 1099-R will still show the distribution, but you report the rollover on your return so the IRS knows the amount isn’t taxable.
Keep the 1099-R and your closure confirmation letter permanently. If the IRS questions whether a distribution was properly rolled over or whether a penalty exception applies, those records are your proof. For Roth IRA closures, also retain records of your original contributions going back to the year the account was opened, since the tax-free treatment of the contribution portion depends on being able to document how much you put in versus how much the account earned.