Early withdrawal of Rollover IRA

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countofmc
Posts: 512
Joined: Tue Dec 11, 2012 12:03 pm

Early withdrawal of Rollover IRA

Post by countofmc » Sun Jan 04, 2015 5:44 pm

My wife has a fairly modest amount ( > $3000) in a Rollover IRA (From a 401k of an old employer). It's a small amount and the only account we have with that specific brokerage, so we often forget about it. As such I was thinking of just withdrawing the amount, setting aside 1/2 for taxes/penalties, and using the other half for a vacation or something. I know it's not the most financially sensible thing to do, but at this point the account is almost an annoyance.

As I understand it, we will owe ordinary income tax (fed and state) on the entire amount along with a 10% penalty. Is this it or are there any other penalties/pitfalls to look out for? Thank you!

chaz
Posts: 13601
Joined: Tue Feb 27, 2007 2:44 pm

Re: Early withdrawal of Rollover IRA

Post by chaz » Sun Jan 04, 2015 5:46 pm

Look at IRS Pub 590.
Chaz | | “Money is better than poverty, if only for financial reasons." Woody Allen | | http://www.bogleheads.org/wiki/index.php/Main_Page

DSInvestor
Posts: 10905
Joined: Sat Oct 04, 2008 11:42 am

Re: Early withdrawal of Rollover IRA

Post by DSInvestor » Sun Jan 04, 2015 5:51 pm

If you're willing to pay the income tax and penalty to withdraw, why not consider a Roth conversion instead? You'd avoid the 10% early withdrawal penalty this way. If she has a Roth IRA, those assets can be consolidated into her Roth IRA.
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icefr
Posts: 599
Joined: Sun Apr 17, 2011 10:50 am

Re: Early withdrawal of Rollover IRA

Post by icefr » Mon Jan 05, 2015 3:22 pm

What about transferring it to a brokerage that you do use more regularly?

curmudgeon
Posts: 1661
Joined: Thu Jun 20, 2013 11:00 pm

Re: Early withdrawal of Rollover IRA

Post by curmudgeon » Mon Jan 05, 2015 3:38 pm

I would roll this into something else if possible, maybe a current 401K or IRA at someplace where you are more active. Maybe even do a Roth conversion, and keep adding to it bit by bit.

It's a bad habit to pull money out of retirement accounts "because the little account is a nuisance", or "it has done poorly", or "I could really use a little extra money since I lost the job". I have relatives who got into that habit, and now they are heading into retirement with very little cushion, having to work more years than they would like, and with difficult prospects when they are unable to work.

Sometimes there may be no choice, but rolling it over (or adding to it) is definitely preferable.

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