Retirement & Financial Planning Report

If you withdraw money from your IRA before age 59-1/2, you usually must pay a 10% penalty on top of income taxes. However, you can avoid the penalty by taking substantially equal periodic payments (SEPPs), based on your life expectancy. These payments must continue for at least five years or until age 59-1/2, whichever comes later.


The SEPP rules can be massaged so that you can take out virtually any amount you need, penalty-free. You can choose among three methods approved by the IRS; you can name a beneficiary (for smaller withdrawals) or go without a beneficiary (for larger withdrawals).


You can split your IRA, too. Suppose you have a $300,000 IRA and you want to withdraw $1,500 per month. However, the SEPP rules require you to withdraw $2,250 per month from a $300,000 IRA: you’d be paying tax on an unneeded $750 a month.


Instead you could split your $300,000 IRA into a $200,000 IRA and a $100,000 IRA. You could take distributions from the $200,000 IRA, pulling out the desired $1,500 per month from that account. The other $100,000 IRA can remain untouched, to continue its tax-free buildup, until you’re beyond age 59-1/2 and clear of the 10% penalty.