Withdrawing early from a retirement account can be quite costly when the tax man comes calling each April. A recent article on Yahoo Finance laid out its best tips for how to maximize your savings by minimizing costly penalties.

Per Yahoo:

Decrease Your Tax Bill

You don’t get to use all the money in your traditional 401(k) and IRA for retirement because you still have to pay taxes on it. However, there are several ways to minimize taxes as you pull money out of your retirement accounts. Consider these strategies to decrease the tax bill on your retirement account withdrawals.

Avoid the Early Withdrawal Penalty

If you withdraw money from your traditional IRA before age 59 1/2, there’s a 10 percent early withdrawal penalty, and that’s in addition to the income tax due on each withdrawal. However, you can take penalty-free 401(k) withdrawals beginning at age 55 if you leave the job associated with that 401(k) account at age 55 or later.

Roll Over Your 401(k) Without Tax Withholding

If you withdraw money from your 401(k) when you change jobs, 20 percent will be withheld for income tax. However, you can avoid the tax withholding and the potential to trigger penalties and fees, if you transfer the money directly from your 401(k) to the trustee of another 401(k) or IRA.

Remember Required Minimum Distributions

You are required to withdraw money from your traditional 401(k) and IRA after age 70 1/2. The penalty for missing a required withdrawal is 50 percent of the amount that should have been withdrawn. However, if you are still working after age 70 1/2 and don’t own 5 percent or more of the company you work for, you can continue to delay 401(k) withdrawals from your current employer’s account, but not IRA withdrawals, until you actually retire.

Avoid Two Distributions in the Same Year

Your first required minimum distribution is due by April 1 of the year after you turn 70 1/2. Your second and all subsequent distributions must be taken by Dec. 31 each year. If you delay your first distribution until April, you will be required to take two distributions in the same year, which could result in an unusually high tax bill or even bump you into a higher tax bracket.

Start Withdrawals Before You Have To

While you don’t have to begin traditional retirement account withdrawals until after age 70 1/2, taking smaller distributions beginning during your 60s spreads the tax bill over more years and could allow you to stay in a lower tax bracket and reduce your lifetime tax bill.

Donate Your IRA distribution to Charity

Retirees who are age 70 1/2 or older can avoid paying income tax on IRA withdrawals of up to $100,000 per year that they directly transfer to a qualified charity. An IRA charitable contribution will also satisfy the minimum distribution requirement.

Consider Roth Accounts

Putting some of your retirement savings in an after-tax Roth account could set you up for tax-free investment growth and tax-free withdrawals in retirement. If you expect to be in a higher tax bracket in retirement, a Roth account also allows you to lock in today’s low tax rate.

Keep Tax-Preferred Investments Outside Retirement Accounts

Investments that generate long-term capital gains receive preferential tax treatment when held outside of a retirement account. However, if you put them in a retirement account, you will pay your typically higher regular income tax rate when you withdraw the money from the account. In contrast, you can lower your tax bill by holding more highly taxed investments, including Treasury inflation-protected securities, corporate and government bonds and funds that generate short-term capital gains, inside retirement accounts.

Reduce Taxes on 401(k) and IRA Distributions

Here’s how to minimize 401(k) and IRA withdrawal taxes in retirement:

  • Avoid the early withdrawal penalty.
  • Roll over your 401(k) without tax withholding.
  • Remember required minimum distributions.
  • Avoid two distributions in the same year.
  • Start withdrawals before you have to.
  • Donate your IRA distribution to charity.
  • Consider Roth accounts.
  • Keep tax-preferred investments outside retirement accounts

Keep scrolling down to see more tips on maximizing your retirement on Money & Markets.