The purpose of accumulating funds in a retirement plan is to distribute them in a way that will provide a solid foundation for financial security in retirement. It is important that the distribution of retirement funds be carefully thought out and well-planned, because of its overall effect on retirement security.

Individual retirement accounts (IRAs) and qualified retirement plans are intended to be vehicles for retirement savings; therefore, the most favorable tax treatment is available to distributions taken during the retirement period. With respect to distributions, qualified plans may be distinguished from IRAs. If specifically provided for in the qualified plan documents, funds may be available to participants before retirement through loans and in-service withdrawals. Loans from IRAs are not permitted. Withdrawals from IRA funds before age 59½ are subject to a full premature distribution penalty, unless the withdrawal meets one of the exceptions permitted by law.

The rules regarding IRA distribution requirements and restrictions, such as minimum distribution requirements and early withdrawal penalties, also apply to qualified plans. However, additional provisions apply to qualified plans. For instance, there are additional exemptions from the early withdrawal penalty, loans and other distribution options that may be available to qualified plan participants.

In this module we will discuss preretirement distributions, distributions at retirement, and postretirement distributions from qualified plans and IRAs. While qualified plans and IRAs are similar in many ways, it is important to note the differences in their distribution rules.

About the Authors

Kristen MacKenzie, MBA, CFP®, CRPC® is an associate professor at the College for Financial Planning. Kristen has over 20 years of experience in the financial services industry, both as an active financial planner and as a provider of financial education. She graduated from the University of Connecticut with a degree in economics and later received her MBA at the University of Colorado.

Michael Angell, CFP®, EA is an associate professor at the College for Financial Planning. He obtained his bachelor's degree in mathematics at Creighton University. His 20+ years of work experience includes banking, insurance, investments, retirement, and estate planning. In addition to his responsibilities at the College, Michael also serves as a private client services advisor with an independent investment firm and is also a federally licensed tax practitioner with a nationally recognized company. You can contact him at Michael.Angell@cffp.edu.

Complexity Level: Intermediate