How Long Can I Leave Money in an IRA?

Age 59 1/2

You can start taking money out of your IRA without facing a tax penalty once you pass the age of 59 1/2. If you hold a traditional or a Roth IRA it is important to keep this timeline in mind, since taking money out of the account prior to age 59 1/2 could subject you to taxes and penalties that could severely reduce the overall value of the account.

While you can start taking money out of your IRA at age 59 1/2, you are not required to do so. If you do not need the money to meet your current cash flow needs, you can leave the funds in the account and let them grow. You can even add to your IRA if you still have earned income. However, once you reach the age of 70 1/2, you are required to start taking distributions from your traditional IRA account.

It is important to note that the RMD requirement applies only to traditional IRA accounts. If you hold a Roth IRA the RMD does not apply because withdrawals from a Roth IRA are not subject to taxation. Consequently, there is no advantage in the IRS to requiring Roth holders to take money out of their IRAs. If you hold a Roth IRA, you can leave the money in the account as long as you wish. You can take as much or as little as you need to meet your living expenses, then leave the rest in your account. You can even leave the entire account intact and make it part of your estate if you wish.

If you hold a regular IRA and will turn age 70 1/2 in the coming year, it is time to start doing some tax planning. The penalties for failing to take your RMD are quite severe -- 50 percent of the amount you should have taken -- so you should start planning your distribution as early as possible. You can use an RMD calculator provided by your brokerage firm or mutual fund company, or you can work with your CPA or tax preparer to determine how much you have to take out. Make that RMD the foundation of your retirement budget for the coming year, then build the rest of your retirement plan withdrawals around that figure.