One advantage of systematic withdrawals is that, if you have money
in qualified retirement plans or traditional
IRAs,
you can set up your
withdrawals to meet your
minimum required distribution (MRD)
after
you reach 70 1/2. The amount of that distribution depends on a number
of factors, including your life expectancy and the balance in your
account.
For example, suppose you
had an IRA with a value of $100,000 and you were turning 70 1/2 this
year. Your MRD for that account value at age 70, when the life
expectancy divisor you use is 27.4, would be $3,649.64, or roughly
3.6%. So you could set up a systematic withdrawal designed to take out
at least that amount over the course of the year.
If you don’t take out your MRD each year after you turn 70 1/2 from your traditional IRA or qualified retirement plan, you owe the IRS a 50% penalty on the amount you should have taken.
