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>If I completely cash out both, I'd lose ~$1300 in surrender charges and have ~$16K.

Are you sure?

RIRA basis is yours tax/penalty free. Earnings will be taxed as ordinary income plus a 10% gross penalty.

TIRA will be 10% on all distributions plus it's taxed as ordinary income.

Your math on the $1300 sounds like you've got hte 10% penalty from RIRA earnings and the whole TIRA distribution. You arne't considering the tax portion (which is going to be larger).

>Is there a downside (besides being out $1300) to cashing out both accounts

Yes, you're going to pay tax and a 10% penalty on your Traditional IRA withdrawal, and on any earnings from your Roth IRA. So say you've put in $10,000 into the Roth, then $1,000 is the earnings. So that's $6,500+$1,000 that gets added to your taxable income, although that may be low this year depending on your 2022 income so far. On top of that, there's a penalty applied after taxes are computed, which is going to be 10% of that, so $750. So you'll either pay that, or $750 is reduced from that refundable Child Tax Credit you have.

If you don't expect to use $16k, don't take out $16k. Take out your Roth contributions first. No tax, no penalty. Then take out $2k (or whatever) at a time from your Traditional IRA.

And are sure you have surrender charges? Those aren't common in IRA's. Unless you're using "surrender charges" to mean "taxes and penalties".

>I'd lose ~$1300 in surrender charges and have ~$16K.

$16k less taxes on the income.

>contribute (in theory) the amount I cashed out of each account. Is this even possible?

No, you can't replace previous contributions your will be subject to the annual contribution limit when you decide to replace the money.

>I don't anticipate being out of work long or spending all $16K

Then don't take out all the money! Why would pay the penalty and the taxes on the whole amount? If this is "my kids will go hungry" territory then take out only what you need when you need it. Start the Roth IRA contributions because those have no penalties or taxes.

>Is this crazy talk?

Raiding your retirement early is almost always crazy talk. But if it's literally a matter of life and death that's less crazy than withdrawing because you can't be bothered to budget.

You'll need to get ahead of this at some point though, you don't want your kids to be your retirement plan.

“Surrender charges”

“Max partial withdrawal”

It sounds like you have purchased some form of annuity or permanent life insurance product, these aren’t terms associated with IRAs specifically (even if you have done so within an IRA). We can’t speak to any fees you may pay for breaking that contract.

Withdrawing anything from a traditional IRA or earnings from a Roth IRA is subject to income taxes and a 10% penalty. You can withdraw contributions from a Roth IRA without tax or penalty.

> My plan would be to open a new Roth and a new Traditional IRA once I get back on my feet again and can contribute (in theory) the amount I cashed out of each account.

If it is within 60 days of the withdrawal, you can do one indirect rollover per year. Otherwise, your contribution for 2022 is limited to the lower of $6000 or your earned income, regardless of what you may have withdrawn.

You aren;t getting 16k out if you cash out. I think you are only considering the penalty and NOT the taxes you would owe. If you pull out 6.5k from a trad IRA you owe income tax on ALL of that. I dont know how much that is going to be as I dont know your tax bracket but it is going to be more than you are thinking. If you pull out of the Roth you dont get the tax shelter so you would owe capital gains on any gains in there as well.

Thank you.

When I look at my online portal for these accounts, there are three categories in the details for each account: Accumulation Value, Surrender Value, and Surrender Charge. I don't see anything for "taxes and penalties."

I appreciate you including all of this detail!

I can definitely be bothered to budget. I just lost my job out of the blue and this is foreign territory to me, so please don't be so critical and judgey. I appreciate your input, but the condescending tone and comments are not helpful.

Thank you so much for this information. Very helpful.

It does look like both accounts are listed as "My Variable Annuity".

Thank you. This is definitely why I came here- I was unaware of the tax implications on top of the penalties, which totally makes sense. And also explains why this is not a good solution to my temporary cashflow problem. Ugh. I appreciate your informative response.

Thank you for clarifying. Dissecting all of this is new to me, as I've never had to consider the possibility of tapping into this, so I appreciate the info!

I should qualify my answer to say you actually may well get 16k in cash out, but that will come with a hefty tax bill at the end of the year. IE you wouldnt pay the taxes on withdrawl, but you would OWE the taxes in your next filing.

An IRA is a type of account. Think of it as a box or wrapper, inside which you can own different investments. An IRA provides special tax benefits to investments owned within it, but there can also be tax penalties when money is withdrawn from the IRA "early".

You said that you own variable annuities within your IRAs. Variable annuities are hybrid insurance/investment products which sometimes have fees when you cash out (or "surrender") them early.

So there are two steps to getting cash from your IRAs, both of which will incur taxes or fees:

1. Surrender the variable annuities owned within your IRAs. You may pay surrender fees to do so. After surrendering the annuities, you will be left with cash (dollars) inside of the IRAs.
2. Withdraw those dollars from the IRAs. This will incur income taxes and possibly an "early withdrawal penalty" as well.

If these steps can executed separately, then your best strategy is to surrender one or both of the annuities, but then only withdraw cash from the IRAs as you need it. This will minimize the taxes you pay for removing your money from your IRAs.

As others have mentioned, you are allowed to withdraw your Roth IRA contributions without incurring taxes or penalties. Assuming you need to take money from these accounts, the best order may be:

1. Surrender annuity in Roth IRA, withdraw up to the dollar amount which you have contributed to this Roth IRA (actually any/all Roth IRAs) in the past.
2. Surrender the annuity in the Traditional IRA, then continue withdrawing as needed from the Traditional IRA.
3. Only withdraw "earnings" from your Roth IRA if/when you have completely removed the money in your Traditional IRA.

Can I assume that your IRA is not held at one of our preferred brokerages (Fidelity, Schwab, or Vanguard)? If not, I'd suggest moving whatever IRA funds you don't withdraw to IRAs at one of those providers, and then invest in low-cost index funds in the future: https://www.reddit.com/r/personalfinance/wiki/iras/

Good luck!