IRA distributions normally are subject to income tax plus a 10 percent penalty before age 59 1/2. You can avoid the penalty with a series of substantially equal payments, based on your life expectancy. If you have a 30-year life expectancy, for example, you can take out 1/30 of your IRA without a penalty.
Such payments do not have to continue for your entire life or life expectancy. Instead, they must continue for at least five years or until you reach age 59 1/2, whichever is later. Then you can stop taking any payments or change the size of the payments without incurring a penalty.
Different methods include:
* Minimum distribution. This is a straight life expectancy approach, based on an IRS "Uniform Lifetime Table." As indicated, this method provides low income and keeps more money in your IRA.
* Annuitization, amortization. These are the other two approved methods. They both assume that your IRA will grow during your life expectancy so larger amounts can be withdrawn. Thus, they work best if you want more money now, even if your IRA is reduced.
The amortization is easier to compute so that method is often used. However, you don’t have to do the calculation yourself: your IRA custodian can handle the math and let you know how much you can withdraw each year, penalty-free.