Is it possible to gradually fade the image from being fully drawn to being transparent to not being drawn? Or if this is not possible is there a way to just un-draw an image?

Set the color of the slot to white at the start of your fade, then at a later frame set the color to transparent. At the same frame it is completely transparent, hide the image, then click the yellow dot next to the slot to key it. This removes the image from the slot and it won't be drawn. Not drawing an image is much more efficient than drawing it transparent (which costs exactly as much as drawing it opaque).

Awesome thanks nate!