Individual retirement accounts, also known as individual retirement arrangements or IRAs, are accounts into which you place investments you want to use to cover retirement costs. Looking at how much you can withdraw, or distribute, from an IRA account each month is useful to determine whether you can use your IRA to meet your monthly budget needs.
A qualified withdrawal from an IRA is a distribution you take between the ages of 59 1/2 and 70 1/2. As explained by the Dollar Bank website, if you take money from your IRA during this period, your withdrawal can be as little or as large as you want with no penalties. Under this stipulation, the monthly distribution amount could be as high as the total value of the IRA divided by 12 months. Any qualified distributions you take, regardless of amount, are subject to income tax.
A non-qualified withdrawal from an IRA is a distribution you take prior to age 59 1/2. Similar to qualified withdrawals, there is no limit on what you can take in a non-qualified distribution. However, any non-qualified distribution is subject to income tax plus a 10 percent penalty on the taxable portion of the distribution, according to IRS Publication 590, Individual Retirement Arrangements. For this reason, early distribution from an IRA can be expensive. However, there are exceptions to the 10 percent penalty. For instance, you don't have to pay the penalty if you are disabled or use the deduction to purchase or fix a home.
Once you reach age 70 1/2, you must take at least one distribution against the balance of the IRA account each year. The IRS determines the minimum amount you must withdraw from the IRA account using life expectancy charts for you and the beneficiaries you might have listed. There is no maximum distribution amount, which means you could withdraw all of your entire IRA funds in one month if desired. If you withdraw from the IRA at least once in a year but don't take the amount required by the IRS charts, then you face a penalty of half the amount you didn't withdraw. For example, if you were supposed to withdraw $500 and only withdrew $150, your penalty would be half of $350, or $175. Leaving your money in your IRA too long thus can be just as costly as taking it out too early.
The IRS allows you to withdraw any amount from your IRA at any time because you legally own the funds and therefore can do whatever you want with them. Thus, your contributions determine the maximum distribution you can take per month. However, IRAs are supposed to support you during retirement. Thus, IRS stipulations outline in Publication 590, Individual Retirement Arrangements indicate that it is important for you to take your withdrawals at the proper time. The maximum you ought to take in a month depends on whether you can afford the 10 percent penalty on an early distribution or the 50 percent penalty on an insufficient distribution.
Having to withdraw from your IRA prior to age 59 1/2 often is a signal that something in your budget is off-kilter and needs adjustment. However, not all withdrawals result from poor budgeting. People often must withdraw from their IRAs to meet basic costs of living during periods of economic difficulty they did not create, such as if they are laid off.
Wanda Thibodeaux is a freelance writer and editor based in Eagan, Minn. She has been published in both print and Web publications and has written on everything from fly fishing to parenting. She currently works through her business website, Takingdictation.com, which functions globally and welcomes new clients.