About This QuizIt can take years, and often decades, to build up funds in an Individual Retirement Account (IRA). However, it can take just moments to cash it out. Do you know the ins and outs of IRA cashouts? Take our quiz to test your knowledge!
At what age can you draw on your IRA without incurring penalties?
At age 59 1/2, your IRA funds become available to you without an early withdrawal penalty.
Of all the people who leave their jobs, how many cash out their IRAs?
Unless they can qualify for exceptions, this 46 percent pays the added income tax and penalty that go along with early withdrawal.
How much is the early withdrawal penalty?
Between taxes and interest, people who withdraw their IRAs before age 59 1/2 may lose up to 38 percent of their funds to taxes and the 10 percent withdrawal penalty.
When can you avoid penalties if you want to withdraw funds early?
when paying for a funeral
when paying for medical expenses that insurance doesn't cover
both of the above
Hardship exceptions can help offset unforeseen expenses, including both funeral costs and medical bills.
Which of these situations allows you to withdraw money penalty-free from your IRA before age 59 1/2?
You want to buy a vacation home.
You want to retire early and arrange for regular withdrawals for at least five years.
If you want to retire early, a 72(t) Early IRA Distribution allows you to withdraw equal amounts from your IRA, once a year, for at least five years.
You owe back taxes.
Hardship exceptions that allow penalty-free withdrawals include which of these?
first-time home buying
education expenses for you or your family
both of the above
If you haven't owned a home for at least two years, or if you or your loved ones are going to college, you can qualify for penalty-free IRA withdrawal.
When should you withdraw funds from an IRA?
when the investment keeps going down, not up
when you want some cash on hand
neither of the above
You shouldn't withdraw funds in either of these circumstances. Most accountants wouldn't advise you to remove IRA funds when the investment is doing poorly, and if you need some quick cash, they would suggest finding another source.
Withdrawing from an IRA to pay off credit cards is:
never a good idea
always a good idea
dependent on the situation
Do the math: The goal is to increase your worth and lower your debt, so if you can come out ahead by cashing out an IRA to pay off credit cards, sometimes it's a good idea. However, you might want to talk to an accountant before cashing out.
If you're at risk of foreclosure or eviction, your IRA funds can be considered:
a potentially penalty-free way of keeping your home
Risk of foreclosure or eviction is considered a hardship, and you may be able to withdraw from an IRA penalty-free to help you save your home.
collateral to offer the mortgage company or landlord
You can qualify for penalty-free withdrawals with:
any type of IRA
none of the above
Not all employers or funds allow every category of early, tax-free withdrawal. Check with your human resources manager to find out what your company allows.