You can move money from an IRA to a savings account, but the IRS treats it as a withdrawal, and you will owe income tax on the amount you take out

The money in an IRA is yours, so technically you can move it anywhere. But the IRS does not see a transfer to a savings account the same way it sees a transfer between two IRAs. When you pull money out of a traditional IRA and deposit it into a regular savings account, the IRS counts that as a distribution — a withdrawal from a retirement account. You will owe income tax on whatever you withdraw, and if you are under 59½, you will also owe a 10 percent early withdrawal penalty on top of the tax.

A Roth IRA works differently: you can withdraw the money you contributed (not the earnings) without tax or penalty at any age. But if you withdraw earnings before 59½, you pay tax and the 10 percent penalty on the earnings portion only.

The bank does not stop you from doing this. Your IRA custodian — the financial institution holding your IRA — will process the withdrawal and send you the money. But you are responsible for reporting it to the IRS and paying the tax that results.

Key Takeaways

  • Withdrawing from a traditional IRA to fund a savings account triggers income tax on the full amount withdrawn, plus a 10 percent penalty if you are under 59½.
  • Roth IRA contributions can be withdrawn tax-free and penalty-free at any age, but earnings withdrawals before 59½ are taxed and penalized.
  • The IRS requires you to report the withdrawal on your tax return; your custodian will send you a Form 1099-R documenting the distribution.
  • If you need money but want to avoid the tax hit, a loan from your 401(k) (if available) or a hardship withdrawal under specific rules may cost less than a full withdrawal.
  • Once money leaves an IRA, you cannot put it back unless you complete a rollover within 60 days, and you can only do one rollover per 12-month period.

How the IRS taxes a traditional IRA withdrawal

When you withdraw money from a traditional IRA, the full amount is added to your income for that tax year. If you contributed pre-tax dollars (which most people do), you have never paid income tax on that money, so the IRS taxes it when it leaves the account.

The tax you owe depends on your total income that year and your tax bracket. If you withdraw $10,000 and you are in the 22 percent federal tax bracket, you will owe roughly $2,200 in federal income tax alone. You may also owe state income tax, depending on where you live. Some states do not tax retirement income, but most do.

On top of the income tax, if you are under 59½, the IRS adds a 10 percent penalty. That same $10,000 withdrawal would cost you an additional $1,000 in penalty, plus the $2,200 in tax — meaning you keep only $6,800 of the $10,000 you withdrew.

The penalty applies to the amount withdrawn, not to the earnings. If your IRA has grown in value, you still pay the penalty on the full withdrawal amount, even though part of it is growth.

Roth IRA withdrawals work differently

A Roth IRA has a built-in advantage: you can withdraw your contributions (the money you put in) at any age, tax-free and penalty-free. The earnings — the growth on your contributions — are a different story.

If you withdraw only contributions, there is no tax bill and no penalty, even if you are 25 years old. Your custodian will tell you how much of your Roth balance is contributions versus earnings; ask before you withdraw.

If you withdraw earnings before 59½, you owe income tax on the earnings portion and the 10 percent penalty on the earnings portion only. So if your Roth IRA holds $15,000 in contributions and $5,000 in earnings, you can withdraw the $15,000 free and clear, but pulling out any of the $5,000 in earnings triggers tax and penalty on that $5,000.

There are a few exceptions to the early withdrawal penalty on Roth earnings — first-time home purchase (up to $10,000 lifetime), disability, and medical expenses over 7.5 percent of your income — but these are narrow and require documentation.

What happens when you withdraw: the paperwork and timeline

When you contact your IRA custodian and request a withdrawal, they will ask how much you want and where to send it. You can have the money mailed to you, deposited into a bank account, or transferred directly to another financial institution. Most custodians process withdrawals within 3 to 5 business days, though some take longer.

Your custodian will send you a Form 1099-R by January 31 of the following year. This form reports the withdrawal to the IRS and to you. The form shows the gross amount withdrawn, how much (if any) was withheld for taxes, and the code indicating whether a penalty applies. You must report this on your tax return.

If you are under 59½, the form will show code 1 (early distribution), which alerts the IRS that you may owe the 10 percent penalty. You will calculate and report the penalty yourself on Form 5329 when you file your taxes, unless an exception applies.

Your custodian may withhold federal income tax from the withdrawal automatically — usually 10 percent for IRAs, though you can request a different amount. This withholding is not the same as paying your full tax bill; it is just a down payment. You may owe more when you file your return, or you may get a refund if too much was withheld.

The 60-day rollover window if you change your mind

If you withdraw money from an IRA and then decide you want to put it back, you have 60 days to do so. This is called a rollover. You must deposit the full amount (including any taxes withheld) back into an IRA within 60 days, or the IRS treats it as a permanent withdrawal.

If your custodian withheld taxes, you will need to cover that amount out of pocket to restore the full balance. For example, if you withdrew $10,000 and $1,000 was withheld, you need to deposit $10,000 back into the IRA within 60 days, even though you only received $9,000. This is one reason rollovers can be tricky.

There is a catch: you can only do one rollover per 12-month period across all your IRAs combined. If you do a rollover in January, you cannot do another one until January of the following year. This rule applies whether you are rolling over from a traditional IRA, a Roth IRA, or a SEP IRA.

The 60-day clock starts the day you receive the money, not the day you request the withdrawal. If you are slow to deposit it back, you run out of time. Mark your calendar and do not wait until day 59.

Alternatives that may cost you less

If you need cash but want to avoid the tax and penalty hit, a few other routes exist, depending on your situation.

If you have a 401(k) through your employer, you may be able to borrow from it. A 401(k) loan does not trigger income tax or penalty — you are borrowing your own money and paying it back with interest. The interest rate is usually prime plus 1 percent, and you typically have 5 years to repay (longer if the loan is for a home purchase). The downside: if you leave your job, the loan is usually due within 60 to 90 days, or it is treated as a withdrawal and taxed.

Some 401(k) plans allow a hardship withdrawal for immediate and heavy financial need — medical bills, eviction, foreclosure, or funeral expenses. A hardship withdrawal is still taxed and penalized, but it bypasses the 60-day rollover rule and does not count against your rollover limit. You will need to document the hardship and show that you have no other funds available.

If you have a traditional IRA and are over 59½, you can withdraw without penalty, though you still owe income tax. If you are between 55 and 59½ and separated from service (left your job), a 401(k) withdrawal may avoid the penalty under the "Rule of 55," though this does not apply to IRAs.

How to minimize the tax impact if you must withdraw

If you have decided to withdraw from your IRA, a few moves can reduce the damage.

First, withdraw only what you need. Every dollar you leave in the IRA continues to grow tax-deferred. If you need $5,000, do not withdraw $10,000 just because it is easier.

Second, consider the timing. If you are having a low-income year, withdrawing in that year means the withdrawal is taxed at a lower rate. If you are expecting a bonus or a large capital gain, wait until the following year if possible.

Third, if you have both a traditional IRA and a Roth IRA, withdraw from the Roth first (contributions only) to avoid the tax bill. Save the traditional IRA for last.

Fourth, ask your custodian about the withholding rate. You can request that they withhold more than the default 10 percent, which reduces the tax bill you owe when you file. This does not eliminate the tax; it just spreads the payment across the year and your tax return.

Finally, if you are self-employed or have other business income, a withdrawal in a year when your business income is down will result in lower tax on the withdrawal.

Frequently Asked Questions

Can I transfer my IRA to a savings account without paying taxes?

Not if it is a traditional IRA. Withdrawals from a traditional IRA are always taxed as income. If you have a Roth IRA, you can withdraw your contributions tax-free, but earnings are taxed if withdrawn before 59½. The only way to move money between retirement accounts without tax is a direct trustee-to-trustee transfer, which is not the same as moving money to a regular savings account.

What if I withdraw from my IRA and then put the money back within 60 days?

You can do a rollover within 60 days and avoid the permanent tax bill, but you must deposit the full amount back, including any taxes that were withheld. You can only do one rollover per 12-month period. If you miss the 60-day deadline, the withdrawal is permanent and fully taxable.

Do I have to pay the 10 percent penalty if I am under 59½?

Yes, unless an exception applies. Exceptions include disability, medical expenses over 7.5 percent of your income, first-time home purchase (Roth only, up to $10,000 lifetime), and a few others. If no exception applies, the penalty is automatic for anyone under 59½.

Will my bank report this to the IRS?

Your IRA custodian reports it to the IRS via Form 1099-R. Your bank does not report the deposit itself. The IRS knows about the withdrawal because your custodian tells them, and you must report it on your tax return.

What if I need the money for an emergency?

A withdrawal is one option, but it is expensive. If you have a 401(k), a loan from that plan costs less. If you have a Roth IRA, withdrawing contributions is tax-free. If you have a traditional IRA and no other options, a hardship withdrawal may be available through your plan, though it is still taxed and penalized. Talk to a tax professional before withdrawing to understand the full cost.