One of the advantages of an individual retirement account (IRA) is its individuality. Your IRA belongs to you, including all of its assets. You can withdraw those assets if you wish and do anything you want with them, including depositing them into a savings account. With the caveat that depending on such factors as your age and what kind of IRA you have, your withdrawal might be subject to income taxes and penalties.
You are allowed to withdraw funds from your IRA and place them into a savings account as you see fit. However, depending upon the specific terms of your withdrawal, you may be forced to pay tax on these funds.
Evaluating Traditional IRAs
If you meet the Internal Revenue Service's income qualifications, you can deduct your traditional IRA contributions from your taxable income when you file your federal income tax return. All of the investments in your traditional IRA grow on a tax-deferred basis. The IRS treats withdrawals from your traditional IRA as ordinary income in the year you receive them. If you take funds out of your traditional IRA before you reach age 59 1/2, that money will likely be subject to an additional 10 percent early distribution penalty.
The IRS doesn't care what you do with your withdrawal. You are free to deposit it into a savings account where that money can continue to earn interest and is easily accessible or invest it into the stock market outside of your IRA.
There are certain exceptions to the early distribution penalty if you are disabled, buying your first home or within certain other IRS criteria.
Exploring Roth IRAs
You can only contribute after-tax dollars to a Roth IRA. You don't get a tax deduction, but you get the added benefit of being able to withdraw those funds anytime you want without creating a taxable event, since you've already paid taxes on that money. Any growth that occurs in your Roth IRA must remain in the account until it becomes qualified to avoid taxes. Your Roth account typically becomes qualified once you've had a Roth for at least five years and turn age 59 1/2.
You can do anything you like with your withdrawals, including depositing them into a savings account, simply spending them or investing them outside of an IRA. Unlike interest bearing accounts inside your Roth IRA, interest produced by a non-IRA savings account is fully taxable.
While all IRAs are by law trustee or custodial accounts, you are not limited to a single trustee or custodian. If you are dissatisfied with the performance of your IRA trustee, you can transfer the assets in your account to a different custodian or trustee.
For example, if you have $14,000 in a mutual fund IRA, you can open a savings account IRA with your bank, and request a trustee-to-trustee transfer. The assets in your old IRA will be transferred to your new IRA and deposited into your savings account. Since you didn't take possession of those funds, there is no taxable event.
IRA Rollover Provisions
If you take a withdrawal from your IRA, and decide you want to maintain those funds in an IRA, the IRS allows you to "roll over" that withdrawal into the same or another IRA within 60 days and avoid paying taxes or penalties on that money. For example, you might know you have a $22,000 bonus coming from work next month, but there is a good deal on a new car now. You could withdraw $22,000 from your IRA to pay for the new car, then within 60 days deposit $22,000 from your bonus into another IRA, such as a bank IRA savings account, without incurring a tax liability.
Mike Parker is a full-time writer, publisher and independent businessman. His background includes a career as an investments broker with such NYSE member firms as Edward Jones & Company, AG Edwards & Sons and Dean Witter. He helped launch DiscoverCard as one of the company's first merchant sales reps.