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Withdrawing money from your IRA

In an ideal world, you'd be so well situated and so busy spending money from other sources that you'd never need to touch your individual retirement account (IRA) and it would grow tax free forever.

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The notion that this could be true for some wealthy people so bothered Congress that it passed a mandatory distribution law which requires that when you reach 70½ you must start withdrawing money from your traditional IRA and begin paying taxes on it.

Of course, Roth IRAs came around later with different sets of rules, such as tax-free distributions with no deadline at all for tapping them.

But how much and when you must withdraw from traditional IRAs is spelled out by the Internal Revenue Service. Reading these rules will give you a headache, but if you're planning your retirement or if you're approaching the magic age, better put on your glasses and read both IRS Publication 575, Pension and Annuity Income, and IRS Publication 590, Individual Retirement Arrangements.

Don't let confusion or inertia stop you from figuring out this issue or getting some help from a financial adviser if you can't manage on your own. The penalties for getting it wrong are huge -- take out too little or do it too late and the IRS will levy a 50 percent penalty in addition to insisting that you cough up the correct amount. Ouch!

While IRS instruction sheets are truly the best way to get the specific directions on your own, here's some initial advice the IRS doesn't offer that could make taking mandatory distributions easier. If this information seems arcane, take comfort from the fact that William Hood, a professor of accounting at Central Michigan University as well as a CPA private practitioner, says the rules that govern minimum required distributions from IRAs are among the most complicated in our tax code.

Most of the information here comes from Hood; Sue Stevens, Morningstar's director of financial planning and president of Chicago-based Stevens Portfolio Design; and CPA Ed Slott, publisher and editor of Ed Slott's IRA Advisor.

Paying the tax man
What the heck is a mandatory distribution and when exactly do I have to take it?
But what does all this mean in George Washingtons?
How long can I put this off?
What if I have a bunch of IRA accounts?
I don't need the money right now. Are there any creative ways to get around this?
I inherited an IRA -- now what?
Next: The IRS calculates your life expectancy based on tables.
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