When a kid's birthday is in the summer, teachers generally let them bring cupcakes into class on their half-birthday. For a little person, this is quite a difficult concept and clearly not as much fun as the real deal.

So when the IRA laws were written in 1974, maybe a bunch of Congressman were still bitter that they spent their lives celebrating their half-birthdays and decided to make 59-and-a-half a monumental age.

Yes, at age 59-and-a-half, you're finally eligible to withdraw money from your IRA, penalty-free. While you still owe ordinary income tax on that money, which could be as high as 35%, the pesky 10% early-withdrawal penalty is gone.

This quirk in the IRA laws takes on added significance now because the first Baby Boomers were born on Jan. 1, 1946; thus, the first ones are celebrating their 59-and-a-half birthdays today. (No word yet on any related spike in cupcake sales.)

So happy half-birthday to the first of your generation to have access to that retirement money.

The obvious response is to scream, "Don't tap into that money at such a young age!" But as with many financial issues, that knee-jerk response isn't necessarily correct.

You Can Look, but You Better Not Touch

If you are still healthy and working at 59-and-a-half, the odds are good you're going to see 89-and-a-half. So please, leave the money alone and keep saving. And unless you've saved an exorbitant amount of money already, you better keep punching your time card.

But let this half-birthday be a wake-up call to all you Baby Boomers: Your retirement is lingering, so make sure you're on the right savings track.

That's crucial since many surveys show that "Baby Boomers are expecting a higher standard of living than in their pre-retirement years," says Bob Carlson, editor of

Retirement Watch

, anewsletter in Oxon Hill, Md. That makes sense: Between cell phones and Blackberrys, many Americans feel like slaves to their jobs now, so why not hope to live like a king in retirement?

The upside is that, hopefully, by 59-and-a-half, big expenses such as college tuition and mortgage payments are down to a minimum. Hopefully you're pretty close to being able to just worry about yourself (and your daily tee times). Even still, make sure you'll have enough money. I don't have to remind you that with so many Boomers set to retire over the next 20 years, Social Security isclearly not going to be your answer to living large.

For a quick estimate on how much you'll need to retire, check out the

American Savings Council's retirement calculator. But for a more detailed calculation that allows you to input plenty of variables, try the

retirement income calculator on the T. Rowe Price Web site. "It comes the closest to giving you the depth you need to get a good number," says Carlson.

So run the numbers and start socking some cash away.

Go Through Withdrawal

On the flipside, there are some sound planning reasons to start withdrawing from your IRA sooner vs. later.

If you have a very large IRA as the result of, say, a 401(k) rollover from a previous job, you might consider pulling some money out.

Here's why. At age 70-and-a-half you're required to start taking out a minimum amount of money each year -- a.k.a., your minimum requireddistribution. So the larger the amount of the IRA, the larger the minimum required distribution (the actual amount is based on a big actuarial formula) and therefore the tax bill. To lower that tax hit in your later years, think about pulling some of it out now and your minimum required distributions will, in turn, decrease later on.

Remember, your IRA withdrawals will be subject to ordinary income tax, which could hit 35% if you make enough money. And that could be a big nut to crack in your old age. But by paying the tax now,while you're still working, the tax hit might not be as painful.

Even better, if you then put that IRA withdrawal in a taxable investment account and leave it alone, you'll only owe the 15% long-term capital gains tax on the appreciation when you finallyneed the money in retirement, says Rande Spiegelman, vice president of financial planning at the Schwab Center for Investment Research. So it might make sense to pay some extra tax now as opposed to when you're 70-and-a-half.

If, instead, you have no intention of using your IRA, and want to leave the money to your heirs, you have a few options.

When you leave an IRA to someone, that person will owe ordinary income tax on the money at withdrawal. To avoid smacking your heirs with a big tax bill, start pulling the money out of your IRA and moving it into a regular investment account. Then your heirs won't owe a dime at your death (estate tax not included, but that's fodder for a different column).

If your adjusted gross income is $100,000 or less, consider converting the IRA to a Roth. You'll owe tax on the whole amount now, but, again, your heirs won't owe anything when they withdraw the money after you're gone.

If you've been blowing off your 401(k) contributions to save for college, cover the costs of an aging parent, or pay for your midlife crisis, consider using your IRA money to get your 401(k) contributions at least up to your employer's match, suggests Bob Scharin, editor of

RIA's Practical Tax Strategies

, a monthly journal written for tax professionals.

"The deduction you'll get for your 401(k) contributions, plus the additional money you'll get from your employer's match, should wipe out the taxes you'll owe on the IRA withdrawal," says Scharin.

Diversifying your investment portfolio could also be another sound reason to pull the money out of your IRA. For instance, an IRA is prohibited from investing in collectibles, paintings orantiques. But if you believe that any of those items will appreciate faster than the investments in your IRA account (or if the artist is on his deathbed), pull the money out and invest.

The same goes for a regular growth stock like


(GOOG) - Get Report




. It may be better to pay the tax on that IRA money now, invest in a quality stock and just owe the 15% capital gains tax when you retire.

Inevitably, someone is going to write in and tell me I'm nuts for ever suggesting you pull your IRA money out early. But thanks to very generous capital gains rates, there are clearly some sound financial reasons to do it. So consult your financial adviser and walk through a few different scenarios.

Hopefully, turning 59-and-a-half is uneventful for you and your IRA. But at least have a cupcake to celebrate.

Tracy Byrnes is an award-winning writer specializing in tax and accounting issues. As a freelancer, she has written columns for wsj.com and the New York Post and her work has appeared in SmartMoney and on CBS MarketWatch. Prior to freelancing, she spent four years as a senior writer for TheStreet.com. Before that, she was an accountant with Ernst & Young. She has a B.A. in English and economics from Lehigh University and an M.B.A. in accounting from Rutgers University. Byrnes appreciates your feedback;

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