When people talk about retirement income planning, they are most often referring to the assets they have in their IRA and 401(k) plans, and how they will withdraw that money, transfer it, or move it from place to place.

What they need to be careful of, however, is doing it properly. If done incorrectly, it could cost a person dearly in taxes. Here are some points to remember:

Remember Required Minimum Distributions
When taking IRA distributions, a minimum withdrawal is required once a person reaches an age that is six months past his or her 70th birthday. The penalty for not taking enough out is substantial: it can cost 50% on the under-distributed amount.

Defer Taking Inherited Money
When inheriting money, one might be tempted to take the money in cash, but that is not the best solution. It is better to spread out distribution of that money over a term of several years. This will ease the potential tax burden and create a stream of income.

Heed Deadlines when Transferring Money
When the lure of a higher interest rate or can’t-pass-up opportunity arises, people should be careful about how they transfer their assets. If they transfer funds themselves, by taking a distribution from one savings plan and rolling it into another, they must complete the transaction within 60 days of the distribution or risk a 20% mandatory withholding on the amount withdrawn, a penalty for early liquidation of the account. This penalty is collected by the retirement plan administrator and sent to the Internal Revenue Service (IRS). Additionally, funds can only be transferred once per year.

A better way to transfer money is to have it sent via direct transfer from one investment company to another. This method carries no withholding, no amount limits, and is a much-more hands-off procedure for a casual investor who is looking for a better return.

Contact Your Attorney
To avoid making costly mistakes with your retirement income, it is always a good idea to consult with an attorney who specializes in estate planning issues, like Patricia Tichenor or Camellia Safi at the Law Office of Patricia E. Tichenor, P.L.L.C. Contact us today.

–excerpted from MarketWatch, “Tax Mistakes That Can Wreck Your Retirement,” Andrea Coombes, Feb. 21, 2012.