How Much Money Can I Withdraw From My IRA Monthly?

Your age and your willingness to preserve your retirement nest egg as long as possible are factors to consider.

Dec 6, 2015 at 11:32PM

People use IRAs to save for retirement throughout their careers, and it's easy to find information on how to invest your IRA to make it grow. What's harder is getting good guidance about how to withdraw money from your IRA prudently. Depending on your age, there are different rules you can follow about taking IRA withdrawals, some of which are mandatory and others of which are up to you.

The magic ages of 59 1/2 and 70 1/2
For reasons now lost to legislative history, lawmakers set the age for taking penalty-free distributions from your IRA at 59 1/2. Once you reach this age, you're allowed to withdraw as much money as you want from your IRA without penalty. There's no monthly limit, but you have to keep in mind that traditional IRA distributions will always be subject to income tax. You might therefore prefer to take smaller amounts out spread over the course of your retirement years.

The IRS gives you that complete flexibility over your withdrawals until the year you turn 70 1/2. At that point, you must start taking distributions from your traditional IRAs. The exact amount depends on your age and your IRA balance at the end of the preceding year, with the calculation using IRS life-expectancy tables to come up with required annual distributions. For instance, if you turned 70 1/2 and had an IRA with a balance of $100,000, the IRS would calculate your life expectancy at 27.4 years. You'd therefore have to withdraw $100,000 divided by 27.4 or $3,650 at some point during the year, which works out to about $305 per month. As you get older, your life expectancy declines, and so the annual distribution requirements become larger if your IRA balance stays stable or grows over time.

Getting money before 59 1/2
If you want to make IRA withdrawals before age 59 1/2, you'll pay penalties unless you qualify for an exception. Withdrawals for special purposes, such as up to $10,000 toward a first-time home purchase or money spent on higher education expenses, avoid the 10% penalty on early withdrawals.

But there's also a catch-all that provides for what are known as substantially equal periodic payments. You can take these payments annually, semi-annually, quarterly, or monthly, and you can use any of three methods to figure out the appropriate amount. The simplest is the required minimum distribution method, which uses the same general methodology that those over age 70 1/2 use. More sophisticated methods include the amortization and annuitization methods. They require more complex inputs, including a set of interest rate assumptions, but they can produce larger permitted withdrawal amounts. For instance, for a 50-year-old with a $100,000 IRA, the RMD method using the single life table produced an annual amount of $2,924, or $244 per month. By contrast, the amortization and annuitization methods both produced figures closer to $4,100, or nearly $100 per month higher.

What should you withdraw?
Finally, beyond what you can withdraw from your IRA, you might also want to keep in mind how much it really makes sense take out. For instance, many retirees use the 4% rule to determine income needs in retirement, which essentially would have you figure out 4% of your total retirement assets and then withdraw that amount each year, adjusting it upward for inflation.

Prudent management of your IRA is vital for long-term financial security in retirement. These rules will give you a good starting point on how much you can afford to withdraw from your IRA.

The $15,978 Social Security bonus most retirees completely overlook
If you're like most Americans, you're a few years (or more) behind on your retirement savings. But a handful of little-known "Social Security secrets" could help ensure a boost in your retirement income. In fact, one MarketWatch reporter argues that if more Americans knew about this, the government would have to shell out an extra $10 billion annually. For example: one easy, 17-minute trick could pay you as much as $15,978 more... each year! Once you learn how to take advantage of all these loopholes, we think you could retire confidently with the peace of mind we're all after. Simply click here to discover how you can take advantage of these strategies.

This article is part of The Motley Fool's Knowledge Center, which was created based on the collected wisdom of a fantastic community of investors based in the Foolsaurus. Pop on over there to learn more about our Wiki and how you can be involved in helping the world invest, better! If you see any issues with this page, please email us at knowledgecenter@fool.com. Thanks -- and Fool on!

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers