IRA, but you don't have to retire first.
Being eligible at 59 1/2 doesn't mean you must start withdrawing then: You can wait until you actually retire — at 62 or 65 or 68 — or until you're ready to add a source of income to your budget.
The only restriction is that you must begin withdrawing from a traditional IRA by April 1 of the year following the year you reach 70 1/2.
If you have a Roth IRA, you don't have to set up a withdrawal plan, or make withdrawals at all, for that matter, if you don't need the money. On the other hand, since Roth withdrawals are tax free, you'll have to weigh whether it might make more sense to use that income rather than to sell investments in taxable accounts on which you might owe capital gains tax.
The IRS doesn't want a traditional IRA to be a way to build the estate you're planning to leave your heirs. So after you reach age 70 1/2, the law says you must start spending what you've saved — whether you need the money or not. One way to stretch the account (but not bend the rules) is to name a much younger person as your IRA beneficiary . When you die, that person may be able to spread payments from the account over his or her lifetime, extending the benefits for many years.
WHAT YOU HAVE TO TAKE
Everyone of the same age divides his or her account value by the same number, with one exception. If you name your spouse as beneficiary, and he or she is more than ten years younger than you are, you can use a different table, which uses a longer life expectancy and requires a smaller annual withdrawal.
If you don't withdraw, or take less than you should, you are vulnerable to a 50% penalty on the amount you should have taken but didn't.
THE TAX BITE
Once you reach age 59 1/2 you can start taking money out of your IRA in any amount you want. You'll owe tax on the amount you withdraw from a traditional account, but you can spend it any way you like. With a Roth, there's no tax at all provided your account has been open at least five years and you're 59 1/2.
TAKING IT EARLY
But you will owe taxes at your regular rate, giving the government added revenue. For example, a couple in their 40s who withdraw $100,000 from retirement accounts to pay their child's college expenses could owe more than 45% of the withdrawal in combined federal and state income taxes.
Before you make that choice, you might compare what it costs to take a home equity loan , with its potentially tax-deductible interest, to the tax bill that comes with taking money out of your IRA. It may turn out that borrowing costs less. Another alternative is to tap your employer-sponsored retirement plans, by borrowing from your 401(k) or similar account. While the amount you can borrow may be limited, the interest you pay goes back into your account, helping to offset loss of potential earnings.
EARLY WITHDRAWAL WITHOUT PENALTY