Understanding Required Minimum Distributions (RMDs) from IRAs

You will face mandatory IRA withdrawals after the age of 70 1/2. You can begin withdrawing earlier, but at this age you will be required to remove the funds. Congress temporarily suspended mandatory withdrawals in 2009 as a result of the economic crisis. However, the suspension is not permanent.

Penalties for Missing Withdrawals

If you miss withdrawals the first year year, you may be forced to take additional money out the next year. This can be advantageous to your situation. Based on your tax situation, you can determine whether it is best to take the money out the first year or take two withdrawals the second. After this introductory period, missing withdrawals will cost you. The IRS can take a 50 percent shortfall on the sum you fail to withdraw.

Managing Withdrawals

Just because you take money out of your IRA does not mean you need to spend it. You can use the funds to purchase stocks, bonds and other investments. Consider purchasing Treasury bonds for additional tax benefits in a given year. If you are going to spend your retirement income, think long term. Today, the life expectancy for an American is very long, and you will need to make your IRA last for an extended period of time.