# Withdrawal: Definition in Banking, How It Works, and Rules

![Withdrawal: Removing funds from a bank account, savings plan, pension, or trust.](https://www.investopedia.com/thmb/H91ZiQqeliUntMd15qB097UjGbM=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/withdrawal.asp-final-1-9d8707ba6a6d47a6ba6e858b53d2170a.png)

*— Investopedia / Joules Garcia*

> **Definition**
>
> A withdrawal occurs when money is removed from a financial account, such as a pension, savings plan, bank, or trust.

## What Is a Withdrawal?

You make a withdrawal when you remove funds from a bank account, savings plan, pension, or trust. In some cases, conditions must be met to withdraw funds without a penalty. A penalty for an [early withdrawal](https://www.investopedia.com/terms/e/earlywithdrawal.asp) is usually charged when a clause in an investment contract is broken. For example, if you withdraw funds from a retirement account like an IRA before you're 59 1/2 years old, you'll get hit with a hefty fee.

### Key Takeaways

*   A withdrawal is an action that removes funds from a bank account, savings plan, pension, or trust.
*   Some accounts don't function like simple bank accounts and carry fees for the early withdrawal of funds.
*   Both certificates of deposit and individual retirement accounts have withdrawal penalties if the funds are withdrawn before the stipulated time.

## How a Withdrawal Works

A withdrawal can be carried out in fixed or variable amounts or in one lump sum and as a cash withdrawal (or in-kind withdrawal). A cash withdrawal requires converting the holdings of an account, plan, [pension](https://www.investopedia.com/terms/p/pensionplan.asp), or trust into cash, usually through a sale, while an in-kind withdrawal simply involves taking possession of assets without converting them to cash.

## Retirement Account Withdrawals

Some retirement accounts, known as IRAs, have special rules that govern the timing and amount of withdrawals. For example, beneficiaries must start taking the [required minimum distribution (RMD)](https://www.investopedia.com/terms/r/requiredminimumdistribution.asp), or withdrawal, from a traditional IRA by age 73 if they were born between 1951 and 1959 or 75 if they were born in 1960 or after. Otherwise, the person who owns the account incurs a penalty equal to 50% of the RMD.

On the other hand, with few exceptions, an account owner must refrain from withdrawing funds until at least age 59½ or the Internal Revenue Service takes 10% of the withdrawal amount as a penalty. Financial institutions calculate the RMD based on the owner's age, the account balance, and other factors.

## Certificates of Deposit Withdrawals

In addition to an IRA withdrawal, banks typically offer [certificates of deposit (CD)](https://www.investopedia.com/terms/c/certificateofdeposit.asp) as a way for investors to earn interest. [CDs](https://www.investopedia.com/best-cd-rates-4770214) draw higher interest rates than traditional savings accounts, but that's because the money stays in the bank's possession for a set amount of time. CDs mature after this time, and then withdrawals can be made from the account, including any interest accrued during the period.

> **Tip**
>
> To have regular access to savings, consider setting up a CD ladder, a strategy where you set up several CDs with different maturing dates. When one of the CDs matures, you can cash it out or reinvest it into a new CD.

Penalties for early withdrawals from CDs are steep—banks usually charge you a specific number of days' worth of interest. The number of days charged varies by bank, but here are a few ballpark figures. If someone withdraws early from a [1-year CD](https://www.investopedia.com/best-1-year-cd-rates-4796650), the penalty could be anywhere from 60 to 270 days' worth of interest. For a [5-year CD](https://www.investopedia.com/best-5-year-cd-rates-4801473), you're looking at 150 days to 12 months' worth of interest.

Some bank penalties take a small percentage, such as 1% or 2%, of the principal amount invested in a CD. Banks assess early [withdrawal penalties](https://www.investopedia.com/terms/w/withdrawal-penalty.asp) proportional to the time an investor must leave the money in the account, which means a longer-term CD gets a higher penalty.

> **Tip**
>
> These penalties don't apply to no-penalty CDs which are offered by some banks. Although the interest rates aren't typically as good as standard CDs, they are fixed.

## What Does a Cash Withdrawal Mean?

A cash withdrawal refers to taking money out of a bank account, usually a checking account, in cash. This is typically done at an ATM machine or at a bank's physical location.

## When Can I Start Taking Money Out of My IRA?

You can start taking money out of a traditional IRA at the age of 59½ without any penalties. If you take out money before then, you will incur a 10% early withdrawal penalty. You can take money out of a Roth IRA at any time, but only the amount you have contributed, not any earnings. Earnings can be taken out at age 59½.

## How Do I Withdraw Money From My Retirement Accounts?

When you are 59½ you may begin withdrawing money from your retirement accounts without penalty. Note that for tax-advantaged plans, such as traditional IRAs and 401(k)s, you will need to pay taxes on the amounts withdrawn. Aside from that, you just need your account information to begin withdrawing and receiving your funds in the manner you choose.

## The Bottom Line

Withdrawals are the removal of funds from a specific financial account, whether it be a bank account, pension account, or retirement account, to name but a few. Some withdrawals don't come with any stipulations, such as taking money out of your bank account, while others, such as some retirement accounts, have set rules on when money can be withdrawn. Before taking out money from any of your accounts, make sure you are following the rules to avoid any penalties or fees.

> **Article Sources**
>
> 1.  Congress.gov. "[One Hundred Seventeen Congress of the United States of America](https://www.congress.gov/117/bills/hr2617/BILLS-117hr2617enr.pdf)," Page 831.
>     
> 2.  Internal Revenue Service. "[401(k) Resource Guide Plan Participants - General Distribution Rules](https://www.irs.gov/retirement-plans/plan-participant-employee/401k-resource-guide-plan-participants-general-distribution-rules)."
>     
> 3.  Experian. "[What You Should Know About CD Early Withdrawal Penalties](https://www.experian.com/blogs/ask-experian/cd-early-withdrawal-penalty/)."
>     
> 4.  Internal Revenue Service. "[IRA FAQs - Distributions (Withdrawals)](https://www.irs.gov/retirement-plans/retirement-plans-faqs-regarding-iras-distributions-withdrawals)."