Like HowStuffWorks on Facebook!

10 Reasons Why People Cash Out IRAs Early


7
Quick Cash
While you can get fast cash by withdrawing from your IRA, the penalties don’t make it a good choice. iStockphoto/Thinkstock
While you can get fast cash by withdrawing from your IRA, the penalties don’t make it a good choice. iStockphoto/Thinkstock

Need cash fast? You probably don't want to acquire it from your high-interest credit cards. Hitting up family and friends isn't always the best method either. Loans can take a month or longer to come through — if you're approved. IRA money, however, can be accessed in just a few weeks. It's no wonder the temptation is so great to cash out.

But while the temptation is great, so are the costs we keep mentioning: income tax, early withdrawal penalties, or both. The whole point of an IRA is to put money away for retirement and let it grow. With a traditional IRA, you get the added benefit of tax-deductible contributions. With a Roth IRA, you pay taxes upfront, but your retirement investments grow tax-free. IRA investing should be viewed as a long-term saving strategy, not as a short-term cash fix.

If you are really desperate for cash, it makes more sense to sell some liquid assets — a car, boat or jewelry — rather than dip into your retirement savings.