Retirement accounts are designed to supplement federal income sources such as Social Security when you reach retirement age. The Internal Revenue Service considers 59 1/2 years old as the retirement age. You can close a retirement account at any time, just be aware of any tax liabilities or account penalties for doing so. While you don't need any specific reason to close a retirement account at any time, there are some reasons that will exempt you from penalties.
Call the retirement account custodian or plan administrator. The procedures are the same for an IRA, 401k, 403b or any other qualified retirement plan. Request a distribution form.
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Fill out the distribution form completely for a "100 percent" distribution. The plan custodian will have your birth date on record and will automatically withhold 20 percent on distributions prior to age 59 1/2 unless you specify on the form that you qualify for a hardship distribution, are paying college expenses or using up to $10,000 for a home purchase or closing costs.
Sign the form and submit it to the custodian at the address listed on the form. Wait one to two weeks to receive your check.
Obtain the 1099-R in January in the year following your distribution. Confirm that the distributed amount is correct and that the distribution is properly coded. Normal distributions taken after age 59 1/2 have code 7 in box 2. Codes 1 and 2 refer to early distributions, the first with no known exception and the second with a known exception (such as the hardship distributions to prevent foreclosure).
Report the taxable income listed in the 1099-R on Line 15a of the IRS Form 1040 when filing your taxes to properly account for the income.
If you are dissatisfied with the investment return on your retirement account but don't need the money, consider performing a rollover or transfer into a new IRA that meets your investment needs. Speak with your plan administrator to see if you qualify for a rollover or transfer.
Consult a tax adviser prior to closing a retirement account to fully understand how much of the distribution will be lost to taxes.