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What are the penalties for cashing out a Roth IRA early (I am 54 years old). My wife and I want to pay down a large personal loan.

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Answers (1)



Thanks for your question. I’ll give you my “bottom line up front” answer, before using retirement assets, be sure to review your entire financial situation to understand the impact it has on your future. It's important to take some time to speak with a financial advisor and a tax professional to review your options before making any big decisions.


With that said, it’s important to know the rules involving your Roth IRA. After age 59 and ½, qualified distributions from your Roth IRA would not be included in your income for tax purposes, better said as one of my favorite money phrases – Tax Free. However, before you reach that age, you could potentially face penalties on money you pull from your account, reducing the amount for use to pay off your loan and reducing the amount you have for your future years.

Below are some specific terms from IRS Publication 590 that relate to Roth IRAs.

  • Contributions into Roth IRAs typically are funded with money that you typically have already paid taxes on
  • Earnings are your investment returns or growth that you have seen in your account.
  • Distributions that are a return of your contributions are not included as part of your gross income.
  • Distributions of earnings may be subject to income tax and to a 10% additional tax (penalty)

It may be that a portion of your Roth IRA can be returned without tax penalty or income tax, however, you should speak with a tax professional about your contributions and balances specifically before making any distributions.


I hope this answer is helpful and please let me know if you have any other questions. Thank you,


Sean Scaturro, MBA, CFP®

Advice Director