Financial advisors spend much of their time helping clients accumulate money. But when the client turns 70 1/2 years old, he has to start taking required minimum distributions (RMDs) and a wealth of tax implications are involved.

When to take the money and how much to withdraw depends on the client's tax bracket and how the money was saved, according to financial advisors.

"Think of it as a partnership. You own most of the money, but in most cases the government owns part of it," says William Reichenstein, head of research for Retiree Inc., a research and advisory firm in Leawood, Kan. Reichenstein holds the Pat and Thomas R. Powers Chair in Investment Management at Baylor University.

During the year a person turns 70 1/2, she can delay her first withdrawal and paying taxes on it until April 1 of the next year. For all subsequent years, withdrawals must be taken by December 31.

For instance, if the retiree turns 70 1/2 this year, her 2012 withdrawal can be delayed until April 1, 2013. But her 2013 withdrawal must be taken by December 31, 2013, so she would end up paying taxes on two withdrawals that year plus any other income. This could easily push her into to a higher tax bracket. The other option is for the client to avoid two withdrawals in one year and not delay the first withdrawal.  

"You have to determine what you are trying to accomplish," say Lauren Locker of Locker Financial Services in Little Falls, N.J. "If your client is about to quit working, you might want to have him quit before he has to take the withdrawal if he is going to take two in the first year."

Experts advise not waiting until the last minute on RMDs because a substantial penalty of 50 percent of the withdrawal applies if a retiree fails to take one in any given year.

RMDs start at about 4 percent of the total account and increase slightly as a person ages. A person may want to start taking withdrawals after they reach 65 but before 70 1/2 if they have a serious illness or think they may not have a long retirement.

Advisors should try to structure withdrawals so that the retiree does not get pushed into the next bracket, Locker says.

More than the RMD can be withdrawn, but the retiree has to be careful not to run out of money. A 65-year old man has a 41 percent chance of living to be 85 and a 20 percent chance of living to be 90, according to the Society of Actuaries. A 65-year old woman has 53 percent chance of living to be 85 and a 32 percent chance of living to age 90.

Roth IRAs and Roth 401(k)s are two retirement accounts from which people are not required to withdraw at a given age, according to the IRS, since the contributions were after taxes.  

If a person continues working, he does not have to make a withdrawal from a retirement account maintained by his employer. But he must make withdrawals from any accounts from former jobs that have not been rolled over into the current employer's account, Reichenstein says.

Reichenstein and William Meyer, a Social Security specialist and author of How to Optimize Retirement Benefits, have developed www.ssanalyzer.com to help determine the best way to take benefits.

Minimum withdrawals must be made from all other accounts, although the total needed to be withdrawn can be taken from a single account, according to the IRS.

"You might want to sell a stock in a portfolio that is not performing well to meet the minimum withdrawal requirement," advises Locker.

The money withdrawn can be used for a charitable donation and count as the minimum withdrawal, but only if it is the first money taken from the account that year. If part of the minimum withdrawal has been taken earlier in the year, a subsequent withdrawal cannot be used as a charitable donation and count toward the minimum.

Withdrawals can be taken periodically throughout the year or in a lump sum. Investors may want to leave the money in the account as long as possible so it continues to grow.

Advisors also should take into consideration the emotional factors when weighing when their clients should take withdrawals and pay taxes, says Christine Fahlund, CFP, and a senior financial planner and vice president of T. Rowe Price Investment Services.

"Advisors should be talking with their clients about when they feel the most pain paying taxes," says Fahlund. "Sometimes people feel more pain paying taxes after they retire, so they should take withdrawals before they retire and go ahead and pay the taxes.

"That is the emotional side of the question," she says. "Maybe they should take part of the money and practice retiring while they are still working part time. That is where advisors have to listen to clients."

Fahlund also notes that taxes may go up after the election, so withdrawals now may be taxed at a lower rate. But if you expect your taxable income to go down significantly next year, it could make sense to wait on the first distribution or distributions over the minimum.

-Karen DeMasters