BETWEEN THE AGES OF 59 1/2 AND 70 1/2, you can do pretty much what you want with your retirement savings. But, outside of those age brackets, you'll have to watch out for a slew of taxes and penalties. Here are some mines to watch out for.
Overfunding an IRA
If you put more than you're allowed into an IRA, the government will sting you. You'll have to pay 6% in excise taxes, for each year the excess is in your account. You should withdraw the excess as soon as you realize your mistake.
The Early Retirement section discusses the ways to get at your money before you turn 59 1/2 without incurring penalties. But unless you follow those strict guidelines, you can't take out funds without being nicked with a 10% penalty on top of all the taxes you'll owe.
Not Withdrawing Enough After Age 70 1/2
After you turn 70 1/2, you are required to start taking withdrawals from your IRA no later than the year after the year you turn that age. People who don't need the income and want their IRA to grow tax deferred for as long as possible must use special IRS tables (tied to your life expectancy) to calculate the minimum amount they must withdraw each year to stay out of trouble. Withdraw too little from your account and you'll be gouged with a 50% penalty on the shortfall. The only exception is if you continue to work into your seventies, you don't have to touch the money in your employer's plan until you retire (as long as you don't own more than 5% of the company).