How to Dissolve an IRA Account
Original post by Cindy Quarters of Demand Media
If you have an individual retirement account that you want to close, or dissolve, there are several steps you must follow. In most cases, closing an IRA will have tax consequences, though these can be avoided or minimized depending on how you handle the distribution of the funds. Carefully consider your situation and the various options you have before dissolving your old account.
Contact the trustee holding your IRA funds. Ask for the appropriate form to request the distribution of all of your funds from the account.
Complete the form to request all of your funds from the account. If you intend to take the cash, fill in your name as the recipient of the funds. If you want to roll over the funds into another qualified retirement plan, you will need to list the name and location of the plan as well as the account number and any other necessary information so that the money from the IRA can be moved directly into the new account.
Fill out the required tax forms related to the transaction. The funds are typically considered to be income for the year. IRA tax forms are handled along with your regular taxes and reported on Form 1040. You may also need to fill out Form 5329, “Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts,” and Form 8606, “Nondeductible IRAs.” These forms are included with your 1040 when you file your income taxes.
Tips & Warnings
- Dissolving a retirement account reduces the funds you will have available to you upon retirement. If you have reasons for closing the account other than needing the cash, it is often best to roll over the account to another qualified savings plan. If you do so, have the money transferred directly from one plan to the other to avoid tax withholding.
- IRS: Individual Retirement Arrangements (IRAs)
- IRS: Form 8606
- IRS: Form 5329: Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts
About the Author
Cindy Quarters has been writing professionally since 1984, creating both user manuals and training documentation. She also writes travel, pet and gardening articles, with work published in "Radiance Magazine" and the "AKC Gazette." Quarters earned a Bachelor of Arts in English from Washington State University, as well as a master's degree in management information systems from West Coast University.
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