It seems like no matter what you do with your retirement money, there's a tax penalty. Retirement plans have limits to the amount of money you can contribute to them annually. For individual retirement accounts (IRAs), this amount is $3,000 (in 2003 and 2004) and an extra $500 if you are age 50 or over. If you put in more than you're allowed to, you'll get hit with a 6 percent excise tax on the excess amount and their earnings.

If you try to withdraw funds from your retirement account before you turn 59 1/2, you may be subject to an additional 10 percent penalty tax.

You must begin receiving distributions from most retirement plans by April 1 of the year after you turn 70 1/2. Taking a minimum distribution could result in extra taxes that year because two distributions may be required, one for the year in which you turned 70 1/2 and one for the following year. If you take out too little, you'll be subject to a 50 percent penalty on the required minimum distribution amount that you did not withdraw.

For years after the year that you turn 70 1/2, you must withdraw your minimum distribution by December 31.

As you can see, you can save a considerable amount of money if you know and follow the rules for avoiding tax penalties.

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