There are two primary types of individual retirement accounts: traditional IRAs and Roth IRAs.Both types of IRAs offer significant, but different tax benefits, including the way funds from the accounts are taxed when they are liquidated.Evaluate whether you need to liquidate the entire IRA.Many of the costs you might use your IRA to pay are considered allowable early distributions.
These include distributions for qualified higher education costs for you or a dependent, health insurance premiums if you are unemployed, nonreimbursed medical expenses that exceed a certain threshold and the cost of a first home for you, your child, grandchild or parent up to ,000.
You may begin taking qualified withdrawals from your Roth IRA once you turn 59 1/2 years of age.
Tax consequences for liquidating your Roth IRA are dependent on such factors as your age, the nature of the funds being withdrawn, and the time period the funds have been in the account.
This is not the same as its debts being discharged, as happens when an individual files for Chapter 7.
The debts still exist in theory, at least until the statute of limitations has expired, but there is no debtor to pay them, so they must be written off in practice.