How To Withdraw Retirement Funds
How to withdraw retirement funds can be a complicated decision. If you have not yet reached retirement age, there may be a 10% penalty for taking retirement funds from your account. The penalty can be waived if you are using the money to buy your first home, or for other reasons that qualify under current tax laws. There are also taxation matters that you should take into consideration before you decide to withdraw retirement funds.
- Unless it is absolutely necessary, you should not withdraw retirement funds if you are under 59 ½ years of age. This is the minimum age to avoid having to pay the penalty for early withdrawal. There are exceptions to avoid the penalty, as mentioned above. Find out if you qualify for an exception before you decide to withdraw the money from your account. You may decide you want to wait until retirement to withdraw the money.
- The order in which you withdraw your retirement funds can make a difference. For example, if you have a diverse portfolio of stocks, bonds and commodities in your IRA account, you may only want to cash out the stocks and not the bonds or commodities. Review your asset allocation carefully if you decide to leave some investments in your account.
- Make sure to understand the tax implications when you withdraw retirement funds. The money you withdraw has never been taxed, so you will have to pay those taxes when you file your return. If you have retired, the loss of regular income from your job may put you in a lower tax bracket.
- You can always consult with a tax professional. They will help you to estimate approximately what taxes you will have to pay on the funds you withdraw. Make sure to find out what a tax pro charges before you hire them. You can search online for the tax information if you prefer not to pay a fee for their services.