3 Mistakes People Make With Retirement Withdrawals
Saving for retirement requires discipline throughout your entire career, but if you're not careful, you can ruin a lifetime of successful saving when it comes time to start withdrawing from your nest egg after you retire. Many retirees do a good job of saving and investing during their work years but then make serious mistakes with their retirement withdrawals that dramatically reduce the effectiveness of their long-term financial planning. By being aware of these mistakes, you can take steps to avoid them and achieve better results in retirement.
No one likes to pay taxes, and many retirement savers make it their goal to avoid tapping into their tax-favored retirement accounts as long as possible. With the IRS requiring distributions from traditional IRAs and 401(k)s at age 70 1/2, many see that age as the earliest that they'll want to withdraw from those accounts.
What many people who use this strategy find is that by the time they turn 70 1/2, their IRA and 401(k) balances have gotten large enough that the required minimum distributions can push them into higher tax brackets. Given that you can withdraw from all retirement accounts starting at 59 1/2 without penalty -- and can take even earlier penalty-free withdrawals under special rules -- smart financial management can help you minimize your total lifetime tax liability from your retirement savings and prevent yourself from having to pay higher tax rates on your income.
Source: Fool.com
