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  Unlike a retirement account that is tied to your employer, a traditional individual retirement account (IRA) is something that you set up yourself and has nothing to do with your employment. Since their 1975 inception, IRAs have been providing tax-deferred savings and are meant to supplement Social Security income upon retirement. Because of the way IRAs are set up, there are substantial penalties for early withdrawal and closing. Understanding the cost for closing an IRA can help you decide if it is worth doing.
  
  

Loss of Retirement Funds

• When you close a traditional IRA, you are stopping the system you had set up for gathering additional retirement funds. You might decide to open another one at a future date, but if you spend the money you withdraw from the current IRA, you are risking having to start from the beginning and having fewer years left to accumulate the cash.
  
  

Penalty

• There are significant financial penalties for early withdrawal and closing of an IRA. In general, you will be penalized 10 percent in addition to any income tax you encounter for closing your IRA. If you have been saving for some time, this penalty could translate to a large amount of money.
  
  

Taxable Income Increase

• When you are no longer contributing to your IRA account, it could increase your taxable income because the pretax money you were funneling into the IRA is no longer going there. Potentially, this could place you in a higher tax bracket. At the very least, it gives you additional income to be taxed.