How to withdraw retirement funds

Stocking away for retirement is tough, so finally taking the money out of your nest egg should be easy, right? While its certainly more enjoyable, the process does require planning.

First, you need to decide when to begin. Generally, the earliest you can start taking unrestricted, penalty-free withdrawals is age 59.5 -- there are a few exceptions, though. For example, you can withdraw retirement funds from plans other than an IRA after you leave employment or change jobs at age 55. You can avoid penalties at any age if using the funds from any qualified plan to pay for unreimbursed medical expenses exceeding 10% of your adjusted gross income (7.5% if you're over age 65).

Next, is what type of account to withdraw from. Qualifying withdrawals from a Roth IRA are tax-free, so you might want to start there, especially if you're still working part-time. A downside to this stretgy is potentially leaving the tax burden of your regular retirement accounts to your heirs. No matter where you start, a traditional IRA and 401(k) require minimum distributions (RMDs) once you turn 70.5. Here's a little secret: RMDs from a 401(k) are not required at 70.5 if you're still working.

When you begin receiving retirement distributions, you have to figure out how much to take each year. When RMDs apply, the minimum amount is set for you. Until then you have options. One recommendation: a withdrawal rate of 4% of the account value per year. However, depending on your situation, you may be able to safely withdraw as much as 7% per year.

As you withdraw funds, you may have to choose which investments to liquidate. Use this opportunity to re-balance your retirement portfolio, perhaps selling more volatile securities and keeping safer ones as you grow older.

For help with account withdrawals and other retirement-related questions, please contact our office.