Can I work or receive other income while taking a 72(t) distribution?

Yes. With a 72(t) distribution, the IRS is only concerned with the account sending the payments, and your employment status and other income is irrelevant. This option is made available to everyone with applicable retirement assets, which is why this concept is so intriguing in our business, and frankly something we are very excited to discuss with people.

If you are fired, laid off, decide to quit your job, or forced to stop working due to a medical condition, this exception can bridge the gap and give you a head start on your retirement, and gives you the ability to continue to pay your bills and maintain your lifestyle. Or maybe you’re still working and could use some additional cash flow, or you feel that it’s now time to start spending your hard-earned retirement savings for whatever reason you desire… you can start this stream of income with no penalties or hassle with the IRS, assuming you structure the distributions properly.

Is it possible to use the 72(t) exemption rule if you only want to withdraw a small amount of money from your retirement account (not the entire balance as the rule states)?

Although the 72(t) rule does indeed state that you must take the equal periodic payments in such a way that the ENTIRE retirement account balance is depleted over your remaining life, there is a solution to get around this. You can open multiple retirement accounts and can choose to only apply the 72(t) distributions to just one of your retirement accounts (not all of them). This can most times be a complex process. We have a highly trained and experienced staff to assist and oversee that this is done in the proper manner. A mistake here could be VERY costly.

Can I still contribute to a retirement account while taking a 72(t) distribution?

Once you start your series of substantially equal periodic payments, you are not allowed to make any additional contributions to the account, including rollover contributions, direct transfers and/or annual contributions. However, right before you start the 72(t) income, you are allowed to move money between accounts. For example, if you have just one IRA with $200,000 in it, but you only wanted $50,000 in the account from which you are taking the series of substantially equal payments, you could transfer $150,000 to a separate IRA so it wouldn’t be affected.

If you have multiple IRAs and you are only taking 72(t) distributions from one of them, you can make your annual IRA contributions by contributing to a different IRA. For example, say you have one IRA at a Bank, another at a Mutual Fund company and a 3rd at an Insurance company. If you are taking 72(t) distributions from your IRA at the Bank, you can make your annual contributions to your IRAs at the Mutual Fund company and Insurance company without penalty, even though you are not allowed to add any money to the IRA at the Bank.

If you would like help properly structuring your early retirement, please contact us today.

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