A liquid asset is either cash, or property that can be turned into cash relatively quickly, that is not affected by market pricing or short-term market fluctuations. Bank accounts and money market mutual funds are common liquid assets. Based on that definition, an IRA's classification as a liquid asset depends on a number of factors. While an IRA may be able to be converted to cash quickly, potential taxes and penalties on the withdrawal, as well as the loss of future investment gains, make it less likely that you will want to use your IRA for quick access to cash.
An IRA is an investment account, and funds invested in an IRA can be invested in many different ways. In addition to bank accounts, IRA funds might be held in stock market mutual funds, individual stocks and bonds, as well as real estate or even gold coins. IRA funds held in bank accounts or money market mutual funds are more likely to be considered liquid assets than funds held in investments that must be sold.
You can withdraw contributions that you make to a Roth IRA at any time, without taxes or penalties. This makes a Roth IRA more attractive to some savers, who fear they may need the funds for an emergency. Because you can withdraw the contributions without any taxes or penalties, a Roth IRA may be considered a liquid asset, particularly if it is invested in a bank savings account or a money-market mutual fund.
A traditional IRA is usually funded with before-tax contributions, meaning you must pay taxes on withdrawals you take from the account. In addition, if you are younger than 59-1/2, you will have to pay a 10 percent tax penalty on any funds that you withdraw. Even if your traditional IRA is invested in liquid investments, the taxes and penalties for withdrawals generally disqualify a traditional IRA as a liquid asset.
60-Day Free Loan
You can withdraw from any IRA tax and penalty-free for 60 days using a nontaxable rollover. Any withdrawals must be re-deposited into the same IRA, or another IRA of the same type, within 60 days. The IRS treats this as a nontaxable event. You may do one of these nontaxable rollovers once per year for any affected IRA, either the account from which you withdraw the money, or the account where you re-deposit the money.
Except in a nontaxable rollover, any money you withdraw from an IRA cannot be replaced. You will lose the potential gains from tax-deferred or tax-free compounding on that money for the future. You also cannot borrow from an IRA or use the account as collateral for a loan.
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