When Is it Best to Close an IRA?

You should generally try to keep your IRA open until retirement.

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As an individual investor, you're in complete control of your individual retirement account, which is not the case with many other types of retirement plans. At some point, you may decide that it's in your best interest to close your IRA. While there are valid reasons for wanting to close an IRA, you may face taxes and penalties when you do so. The best time to close your IRA will be a time when your needs outweigh the costs.

Excessive Fees

Any number of fees may be attached to your IRA, and you may not be aware of all of them. Some firms charge a custodial fee of $50 or more to cover the costs of overseeing your account and sending relevant tax information to the Internal Revenue Service. Other firms may charge you an investment management fee of hundreds or even thousands of dollars per year for investing your money on your behalf. If you can move your IRA to a comparable firm with the same or better level of service but lower fees, it may be an appropriate time to close your IRA.

Employer Plans

In most cases, your IRA will give you the most investment flexibility of any type of retirement account. IRAs have few restrictions on what investments you can hold in the account, although the penalties are severe if you violate these restrictions. While employer-sponsored retirement plans are typically more limited in their investments, some 401(k) plans, for example, can have over 100 different investment options. An employer plan might also allow you the opportunity to buy company stock at a discount, or to benefit from a corporate matching program. If the net benefits of your employer plan outweigh those of your IRA, and if your employer allows a rollover into the plan, you may consider closing your IRA.


If you have a pressing need for the money in your IRA, that may be the most appropriate time to close your IRA, regardless of other considerations. The contributions and earnings in your IRA belong to you at all times, and if you need the money, it's there for you at any time. While the intent behind an IRA is to build your retirement nest egg, sometimes dire circumstances may leave you with no other options. Barring unfortunate circumstances, the best time to close your IRA is usually in retirement, when you can take regular distributions, either to supplement other income or to replace lost income.


Taking money out of your IRA can prove costly. Although rollovers to other plans are usually tax-free, distributions you take out of your IRA are typically taxable, with Roth IRAs being the exception. For both traditional and Roth IRAs, you'll pay an additional 10-percent penalty if you take your withdrawal before age 59 1/2, with limited exceptions. If you have a substantial amount in your IRA and withdraw it all at one time, you could bump yourself up into a higher tax bracket. The combination of federal and state taxes and penalties could top 50 percent.