After spending years saving for retirement, there will come a time when you are ready to withdraw those funds and use them to support your new retired lifestyle. While this may seem like a simple task, it takes some planning and understanding of rules and regulations to minimize paying penalties and taxes and keeping as much as possible in your wallet.

Here are a few tips for withdrawing money from your retirement account.

Know withdrawal limits

If you withdraw from a retirement plan before age 59-1/2, you'll get hit with a 10% early withdrawal penalty.

While you can't leave funds in the account forever (typically you must start making withdrawals once you reach age 70-1/2), some Roth IRAs don't require withdrawals until the owner of the account dies. Knowing which accounts you have and the withdrawal rules of each can help you avoid penalties, while also allowing you to leave funds in an account to grow for as long as possible.

Understand required minimum distribution rules

Required minimum distribution, or RMD, means that once you reach age 72, you must take a certain minimum amount out of retirement accounts such as IRAs or 401(k)s.

The rule is that:

• RMDs must be taken annually by April 1 of the year after you turn 72, and
• RMDs must be taken annually by December 31 for each subsequent year

If you do not do this, you'll be charged a 50% excise tax. You'll also be charged if you don't withdraw the correct minimum amount.

For example, say you turn 72 in 2022. You have until April 1, 2023, to take your first RMD. Then, you must take the next RMD by December 31, 2024.

In this example, say your RMD is $10,000, but you make a calculation mistake and only withdraw $5,000. You will get the 50% tax penalty on half of the amount you failed to withdraw, which in this case would be $5,000.

The other important piece to note is that your RMD can change from year to year because it's determined by your age, life expectancy, and account balance, which is the fair market value of the assets in your accounts.

Finally, note that you can't make withdrawals from an IRA to meet RMD requirements for a 401(k) or other retirement plan.

However, if you continue to work at age 72 and are still contributing to a 401(k) or 403(b), you can delay your RMD as long as your retirement plan allows it. In this case, you'd be able to delay the RMD until April 1 after the year you "separate from service," or stop working. But, keep in mind this delay only counts for the retirement plan for the company you're currently working for. If you have 401(k)s from other jobs, you'll still need to start taking the RMD after you turn 72.

Learn how to withdraw distributions

Many retirees have multiple retirement accounts due to job changes throughout their working years. So, when it comes to figuring out how to withdraw the money from them, it can be confusing.

One tip is if you have multiple traditional IRAs, it may be beneficial to add the assets from all these accounts and take one withdrawal from a single IRA vs. withdrawing from each individually. This can help make it easier to make withdrawals in the future and have more control over your assets.

Another tip is that 401(k) plans can't be pooled to compute one RMD, so to help with this, you can roll them into an IRA.

Roll funds into a Roth IRA

Roth IRA contributions can grow tax-free, so many experts recommend rolling retirement account funds into a Roth IRA. While this may trigger a tax bill, the funds can then continue to grow tax-free over time.

Even if you're close to retirement or taking RMDs, it can be beneficial to do this to help grow your funds to pass on to any heirs. If you do not want to do this, you can leave your funds where they are and take distributions from each account.

Some people find that as their careers come to an end, they may need to take distributions from their retirement plans earlier than expected. If you're at least 59-1/2, you can do so without facing penalties. However, another option is to covert a traditional IRA into a Roth IRA, especially if your marginal rate is lower than you expect it to be at age 72. Not only can this help you avoid taking early distributions from your accounts, but it can also help you delay taking Social Security benefits, so you can get more later.

Make withdrawals in the right order

Believe it or not, it matters the order in which you make withdrawals. This is primarily due to taxes and RMD, and continued growth in the account.

Experts suggest withdrawing from taxable retirement accounts first, like a 401(k), and leave Roth IRAs alone for as long as possible.

For example, consider a person withdraws $20,000 out of a traditional IRA while in the 24% tax bracket. They would then owe $4,800 in taxes. Even though they wouldn't pay anything in taxes on that same amount withdrawn from a Roth IRA, which means they are missing out on earnings opportunities.

If they leave that $20,000 in the Roth IRA and earn 7% interest annually for another 10 years, the balance would be more than $39,000. These earnings are still withdrawn tax-free, so by avoiding instant gratification, this person was able to continue to grow their retirement savings.

Donate to charity

Individuals aged 70-1/2 or older can make tax-free donations of up to $100,000 annually, directly from their IRA to a charity, as part of their RMD. This distribution, called a qualified charitable distribution, doesn't count as income, therefore reducing any income tax liability. While this can't be itemized as charitable deductions, you'll pay less in taxes, so it's a great way to make donations if that's something you're interested in.

Choose a retirement withdrawal strategy

When it comes to withdrawing funds from your retirement accounts, there are several strategies to consider. Each has pros and cons, so the right one for you depends on your personal preferences and situation. You can also mix and match different approaches.

4% withdrawal rule

Some experts suggest withdrawing 4% of your retirement savings in your first year of retirement, and then adding an additional 2% each year after to adjust for inflation.

For example, say you have $2 million saved in your retirement. During the first year, you'd withdrawal $80,000. Then in the second year, $81,600. In the third year, you'd withdrawal $83,232, and so on.

While this strategy is easy to follow and can help you predict your income each year, making budgeting easier, it doesn't consider increasing interest rates and market volatility, which can lead to depleting your savings early.

Fixed-percentage withdrawals

Somewhat like the 4% rule, this approach is to withdraw a set percentage of your portfolio annually. So, the amount will vary based on the value of your portfolio, but if you choose a percentage below the anticipated rate of return, you could continue to grow your income and the value of your account.

Or, on the other hand, if your percentage is too high, it can deplete your assets faster.

"In kind" withdrawals

In-kind distributions are withdrawals from your accounts taken in the form of stocks or bonds, allowing you to keep these assets. You can then move the assets from your IRA into a taxable account, assigned a fair market value on the date they are removed. This makes these withdrawals easier and cheaper than fees you'd face by selling securities in the IRA and buying them back in a brokerage account.

Fixed-dollar withdrawals

Sometimes, retirees will take out a fixed dollar mount over a specific period of time. For example, you'd take out $50,000 per year for five years, and then reassess if that is still sustainable or if you must change it.

Many people like this strategy because it provides predictable income and is easy to budget, and when taken from an IRA account, federal taxes can be automatically withheld. But, it also doesn't protect against inflation and can erode your fund's principal balance.

Systematic withdrawals

In this case, you'd only withdraw the income created by the underlying investments in your portfolio, such as dividends or interest. Your principal balance would remain the same, so you wouldn't run out of money and could even continue to grow your investments.

The downside is that the amount of income you withdraw will vary each year depending on the market.

Use a retirement spending calculator

There are several calculators and tools designed to help people estimate their retirement savings and spending opportunities. Enter information like your age, current savings, portfolio equity allocation, and others to see estimated spending and saving potentials over time.

You can also work with a financial advisor to ensure you're on track for saving and spending appropriately.