You can take out any amount at any time from your retirement plan without facing an early withdrawal penalty once you have reached age 59 1/2, but you must begin withdrawing required minimum distributions (RMDs) from your plan once you reach age 70 1/2.

If you fail to take out the RMD, you may face a 50 percent penalty tax. The Internal Revenue Service imposes the penalty tax on any part of the RMD that you fail to take.

If you are still working at age 70 1/2, however, you can delay beginning your required minimum distributions until you retire — with two exceptions: If you own at least 5 percent of the company or if your plan is an IRA, you must begin taking RMDs even if you are still working.

Your required beginning date is the deadline to begin taking RMDs from your plan. If your plan is an employer plan, you have two possibilities: Your deadline is April 1 of the year following the later of either:

• The year you attain age 70 1/2
• The year you retire

For example, if you retired at age 68 and reach age 70 1/2 any time during the year 2003, your required beginning date would be April 1, 2004. Beginning the second year after you turn 70 1/2 (or after your required beginning date, if it's later), you must take your RMD by December 31. You cannot wait until April 1 of the following year to take the distribution.

You also need to carefully consider the timing of your first year's payments in light of possible tax consequences down the road. What does this mean? Consider the following example. Eleanor turned age 70 1/2 in 1999 and delayed taking her first required distribution until March, 2000. That same year, her second year after turning 70 1/2, she had to take another required distribution before December 31. The result? Taking two distributions in the same year pushed Eleanor into a higher income tax bracket.

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