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How to Take Money Out of Retirement Accounts

Congratulations! You’ve reached that retirement milestone, and you’re able to live on your own terms! You can finally say goodbye to the daily grind and do what you’ve always wanted.

Now what?

The next hurdle is figuring out the process for taking money out of those investing accounts you’ve been growing over time. You may feel a little anxious about it, but don’t stress out. With some basic knowledge and the help of others, this process can be smooth sailing. In a nutshell, here are the steps:

  1. Work with a financial advisor to decide how much you have to take out. Seriously. Talking with a professional is worth the time, effort and brainpower. And it saves you a lot of stress, too.
  2. Decide how you want to receive your money: one lump sum or through a series of automatic withdrawals. Different investment accounts have different rules about withdrawals, so read the fine print.
  3. Contact the financial institution where your account is, and let them know you’re ready to start withdrawing money. In some cases, you can complete this process online.
  4. The financial institution (or the website) will prepare paperwork for you.
  5. Read through the paperwork and ask questions about anything you don’t understand.
  6. Sign and return the paperwork.
  7. The financial institution will process the paperwork and give you the money.

Now, depending on the bank or brokerage company, you can do some or all of these steps in one visit. But you’ll need to allow time for the paperwork to process. Don’t expect to receive your money immediately.

While you may not need to take out money to make ends meet just yet, the IRS requires you to take money out of some accounts at age 70 1/2. Again, the rules are different for the various kinds of retirement accounts, so before you take any of the steps outlined above, make sure you understand how the IRS requirements apply to you.

We'll briefly explain the basics. As you read, you’ll notice we use words like probably, could, might, likely, and possibly. That’s because there are exceptions for just about every IRS rule. We can’t speak to your specific situation in an article post, but you can get the gist.

Taking Money From Traditional Retirement Accounts

Non-Roth IRA accounts—including traditional IRAs, SEP IRAs, 401(k)s, 403(b)s, 457s, and SIMPLE IRAs—have a deadline for what’s called required minimum distributions (RMDs). The IRS sets a minimum amount that you must withdraw from your account(s) every year. That amount is based on your life expectancy and the amount of money you have saved in your non-Roth IRAs. The amount also changes every year.

To determine your RMD:

  1. Visit the IRS website to find your life expectancy.
  2. Divide the amount of money in your account(s) by your life expectancy.

Let’s say you have $200,000 in a traditional IRA and start taking money out at age 70 1/2. According to the table provided by the IRS, you have a life expectancy of 27.4 years.

  • $200,000 (amount in IRA) divided by 27.4 (life expectancy) = $7,300 RMD for this year

In this example, your RMD would be roughly $7,300. When you take the money out, you’ll pay taxes on it because it wasn’t taxed when you put it into the account—which is why the government requires the withdrawal in the first place. Uncle Sam wants his share. You’re allowed to take out more than the minimum amount, but again, you pay taxes on it.


How much will you need for retirement? Find out with this free tool!

If you don’t take your RMD by the IRS deadline (at age 70 1/2) or you don’t take out enough money, that mistake will probably cost you a whopping 50% tax on the amount you should have taken out. Every year after that, you’re required to make the withdrawals by December 31.

Taking Money From Roth Accounts

If you have a Roth IRA, you can take out money, tax free, any time after age 59 1/2. There’s no RMD for Roth IRAs. You could keep the money in there indefinitely. However, taking money from a Roth IRA does not count toward your RMD for a traditional IRA.

The Roth 401(k) and Roth 403(b) accounts are a little different. As long as you’re working, there is no RMD for either of these accounts. However, when you retire or when you reach that magic age of 70 1/2, your RMD will kick in for your Roth 401(k) and Roth 403(b) accounts (and others like them). The good news is that with some of these employer-based plans, you might be able to roll over the funds into a Roth IRA to avoid the RMD. Talk with your financial advisor for the details and to do the paperwork.

Taking RMD Out of Multiple Accounts

If you have several IRAs, you don’t have to take the RMD out of each account. Instead, you can add up the RMDs from all of your accounts and take your RMD from one of those IRAs. The other option is to consolidate the multiple IRAs into one IRA.

However, the same option doesn’t apply for traditional 401(k)s and similar plans. You have to pay the RMD from each 401(k). To make paperwork easier, you may be able to roll over multiple 401(k)s into a single IRA to make things easier on yourself.

How You Can Use Your RMD

Now, listen up because this is important: Just because you are required to take out money doesn’t mean you are required to spend that money. Yes, you can use it for your living expenses and everyday needs, but that’s not your only option. Here are some other choices:

  • Transfer the money into your checking account. From there, you can spend it as you wish.
  • Transfer the money into a savings account.
  • Transfer the money into a taxable investment account. You can invest the money in the mutual fund of your choice, but the money will be taxed just like income when you take it out. There are no special breaks.
  • Do a direct rollover into another investment account (there are rules about this, so it’s not always an option).
  • Send a check (up to $100,000) directly to a charity of your choice. It will count toward your RMD, and you won’t pay taxes it. This option lowers your adjusted gross income for the year (which can affect how much you pay in taxes), but you can’t also deduct that money as a charitable contribution.

When you decide to take out that RMD, make sure it matches up with your budget needs. Yes, you’ll still need to budget in retirement. Don’t take out too much at once just because you can. You’ve worked too hard all this time to blow through your money and then have to go back to work!

Best Advice for Withdrawing Money

Here’s the bottom line, and it’s the honest truth: The IRS rules can make your head spin. They’re confusing, and they sound like they’re written by a Ph.D. scholar. When it’s time to take out money from your retirement accounts, we recommend talking with your financial advisor instead of trying to go it alone. With a little budgeting prep and the help of a pro, you’ll be set to withdraw an amount that suits your needs and still lets you enjoy the hard-earned fruits of your labor—for the rest of your life.

Need help finding a qualified investment professional? Just enter your information, and you’ll get a list of SmartVestor pros in your area to help you make a plan for your retirement.

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This article provides general guidelines about investing topics. Your situation may be unique. If you have questions, connect with a SmartVestor Pro. Ramsey Solutions is a paid, non-client promoter of participating Pros. 

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Ramsey Solutions

Ramsey Solutions has been committed to helping people regain control of their money, build wealth, grow their leadership skills, and enhance their lives through personal development since 1992. Millions of people have used our financial advice through 22 books (including 12 national bestsellers) published by Ramsey Press, as well as two syndicated radio shows and 10 podcasts, which have over 17 million weekly listeners. Learn More.

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