You probably anticipate that the IRS will want a portion of your individual retirement account (IRA). But how much of your IRA distribution is subject to taxes, and when must they be paid?

It is important to remember that your IRA consists of both the contributions you have made over the years and the earnings on your contributions. The earnings include reinvested interest and dividends that have accrued over the years on the contributions you have made, as well as the appreciation of your investment. When you make a withdrawal from your IRA, it may include portions of your original contributions.

Distributions from deductible IRAs are fully taxable, while distributions from non-deductible IRAs are partially taxable. That part of a distribution attributable to non-deductible contributions (after-tax dollars) is not taxed; taxes were already paid.

Here is the breakdown of what is taxable upon withdrawal in an IRA:

When you take distributions, you must separate nondeductible contributions from earnings, and nondeductible contributions from tax-deductible contributions. The IRS has formulas that can separate these amounts.

Of course, distributions that are taken before age 59½ will be hit with a 10 percent penalty unless they meet the special exceptions in the tax code.

The rules we've discussed here apply to traditional IRAs. Remember that each type of individual retirement account has its own special rules. Be sure to study each type carefully to learn the details of its contribution and withdrawal rules and its tax privileges.