Understanding Your IRA

If you are considering retiring before age 59 ½, you may want to dip into some income from your IRA.

If you decide to take some money out of your IRA, you’ll want to try to avoid the 10 percent early withdrawal penalty that the IRS may impose on the amount you withdraw. One way to do so is by taking what’s known as 72(t) distributions, which are essentially a series of substantially equal periodic payments. This strategy requires you to take – at least annually – substantially equal withdrawals that you compute based on IRS life expectancy tables and methodologies. You must continue these withdrawals for five years or until you reach age 59 ½, whichever is longer.

For example, if at age 50 you begin taking these periodic withdrawals, you must continue them until age 59 ½. If you start the withdrawals at age 58, you would have to continue them for at least five years from the first payment date or until age 63. If you use this strategy, you might consider splitting your IRA in two – one for withdrawals and the other to continue to potentially grow and act as a fallback in case of emergency.