How Do I Tap My IRA?

I’m about to turn 59½ and would like to withdraw money from a traditional IRA to pay my daughter’s college tuition. I’ve been focusing on adding to the account for all of these years. What do I need to do to finally start taking money out?

Once you reach the magic age of 59½, you may withdraw money from your IRA for any reason penalty-free. Your withdrawals from a traditional IRA will be taxed (unlike withdrawals from a tax-free Roth), and you’ll be given the option to have the taxes withheld when the money is distributed.

The specific rules for accessing the money vary from sponsor to sponsor, whether your account is held by a brokerage firm, mutual fund company, or bank. Fidelity customers, for example, may either request their distributions online or call a customer service representative. If you request your withdrawal online, you’ll be able to use an interactive tool that helps you figure out how much federal and state tax you'll owe, although it's up to you to decide whether to have the taxes withheld from your check

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Charles Schwab customers must indicate in writing whether they would like taxes withheld at the time of distribution or whether they will pay the taxes when they file their tax returns. They can do this either by filling out an online-distribution request at Schwab.com (with an electronic signature), or by submitting an IRA distribution request form or a tax-withholding election form for IRAs, both of which are available at Schwab.com or by calling customer service . After you’ve submitted one of these forms, you may request paperless distributions from your IRA in the future. You may take a one-time payment or set up a regular withdrawal schedule.

The brokerage firm will send a Form 1099-R both to you and the IRS showing the amount withdrawn and the taxes withheld. (You should receive a copy of this form by February of the year after you take the IRA distribution.) Because you’ll be 59½ or older when you take the money, you won’t have to pay an early-withdrawal penalty. If you were younger than 59½, your 1099-R would say “early distribution -- no known exception.” People younger than 59½ may take IRA withdrawals penalty-free for college costs, but they need to file IRS Form 5329 specifying that the IRA distribution was used for eligible college expenses, in order to avoid the early-withdrawal penalty. (See Instructions for Form 5329 for details.)

Money withdrawn from a traditional IRA is taxable in your top income-tax bracket, except to the extent that it represents a return of nondeductible contributions. If you’ve ever made nondeductible contributions or rolled over after-tax amounts to a traditional IRA, you must complete IRS Form 8606, which is used to figure the nontaxable distributions and total IRA basis for the current year and earlier years, and attach it to your tax return (see IRS Publication 590, Individual Retirement Arrangements, for details.

Got a question? E-mail Kim at askkim@kiplinger.com.