Will I owe taxes if I make a withdrawal from my Later account?

Article author
Hoang P.
  • Updated

Withdrawing from a traditional IRA 

Withdrawing from a SEP IRA

Withdrawing from a Roth IRA 

What are the exceptions?

Important tax information  

You may owe taxes if you withdraw from your Later account before you reach age 59 1/2 — but it depends on a few factors.

Your Acorns Later account is an IRA (individual retirement account). We offer 3 different types of IRA plans: traditional, Roth, and SEP. Each of these plans can have some big potential tax benefits that can help you pay less taxes on the money you're investing for your future.

But on the flip side, withdrawing from an IRA before age 59 ½ could have tax implications for people — there are only a few exceptions. Withdrawing funds early from your Acorns Later account could result in a penalty (generally an additional 10% tax, and possibly income taxes and other penalties). You can learn more from the IRS website

Here’s what might happen if you make an early withdrawal from your Later account, broken down for each type of IRA plan we offer.

Withdrawing from a Traditional IRA

For traditional IRA plans, you contribute "pre-tax dollars" — money you've earned and have already paid income taxes on. Because you’ve already paid taxes on it, you may be able to deduct your contributions from your tax bill today, lowering your taxes. Then, you'll pay income taxes when you withdraw it in retirement.

But if you take out any cash before the minimum distribution age, you may face a 10% penalty, as well as regular income tax.

Withdrawing from a SEP IRA

Simplified Employee Pension (SEP) IRA plans — the account for side giggers and other self-employed people — works basically the same as a traditional IRA. Any money withdrawn before the minimum distribution age may face a 10% penalty as well as regular income tax.

Withdrawing from a Roth IRA

With Roth IRAs, you contribute "post-tax dollars" — what that means is you’ve already paid taxes on the money you contribute to the IRA. So, you won’t pay any taxes on the money when you're withdrawing it in retirement. 

If you want to withdraw money before you're the minimum distribution age, you can tap your contributions anytime without penalty. But if you withdraw any investment earnings (a.k.a. the market returns your invested money has generated) before the minimum distribution age or before you’ve had your account open for at least five years, you’ll generally owe income tax, plus the 10% penalty.

What are the exceptions?

Sometimes the IRS will waive a tax penalty for early withdrawals. We’ve listed some of the exceptions below, and you can learn more from the IRS website

Qualified Reservist Distributions (QRDs) - These are for military members who were called into active duty from the reserves for over 180 days.

Disability - The IRS defines disability as “total and permanent disability of the IRA owner.” To qualify for this exemption, your condition must prevent you from working.

Death - Please contact us if you are the beneficiary or trustee of an Acorns Later account. Legal documents may be required.

Education - IRA funds may sometimes be withdrawn without tax penalty for higher education expenses. Talk to a tax specialist about your options.

Medical - The IRS splits medical exemptions into two categories: unreimbursed medical expenses and medical insurance if you are unemployed.

Important tax information

If you make a withdrawal or choose to close your account, you may receive important tax forms from Acorns that you'll need for filing your taxes. We'll email you more information when it's close to tax time, or you can check for tax forms under Settings

Your tax situation is unique, so you may want to consult a tax advisor or visit www.irs.gov with any questions before making a withdrawal or removing funds. Acorns doesn't provide tax advice, but if you have any questions or concerns about your account, please contact us.

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