There is no complexity in taking the distribution. Just ask the IRA custodian to send you a distribution of the amount you need. The problem is the taxes and penalties you will owe.

Assuming that this is a traditional IRA (not a Roth) and was funded by rollovers or deductible contributions, the entire distribution will be taxable as ordinary income on line 15 of Form 1040. You may be in a lower tax bracket if you have been out of work for awhile. Let’s assume 15% federal and 5% for CA. In addition to the tax you will owe an early withdrawal penalty of 10% for the federal and 2.5% for CA. That’s a total of 32.5% of your distribution lost to taxes and penalties.

But you may qualify for an exception to the penalty portion to the extent you pay for medical expenses over 7.5% of AGI, pay higher education costs, are unemployed for a long period and pay for medical insurance, and a few others listed on p 53 of IRS Pub 590.

If you are in your 50s, and future job prospects are very grim, you may decide to initiate what is known as a 72t or SEPP plan. Under such a plan you can set up equal annual distributions from your IRA penalty free (but not tax free). These distributions must last for the longer of 5 years or until you reach 59.5. However, the rules are complex and if you deviate from the required distribution rules you will then owe a retroactive penalty back to the first year of the plan plus interest on the penalty. Therefore, do not consider this method unless you fully understand the rules and costs.

Once the funds are distributed, you cannot replace them unless you do so within 60 days, eg. if you found a job right away. There is no limit to the number of distributions you can order, so just take out what you need month to month. The IRA custodian will withhold 10% unless you specify a different amount, and of course 10% will not be enough to cover the tax and penalty from the distributions.

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