What is 72t?
72t is the Internal Revenue Code Section that covers withdrawals from retirement accounts, such as; 401k’s, 403(b)’s including Qualified Annuities, Pensions, Individual Retirement Accounts (IRA’s), or any other tax deferred retirement savings vehicles. The age at which you can start taking withdrawals from a retirement account without penalty is 591/2. If withdrawals are taken before age 591/2 then there is a 10% penalty tax assessed. However, 72(t) lists some exceptions to this rule where you can access your retirement dollars prior to age 591/2 without paying the 10% penalty tax.
Some of these exceptions include (but are not limited to): Distributions taken for first time home buyers higher education expenses medical expenses separation of service IRS levies establishing a Series of Substantially Equal Payments
These discussions will primarily focus on the last of those options: establishing a series of substantially equal payments (SEPP). This is the most frequently utilized exception, and for simplicity sake, this is the exception that we will be referring to when we use the term “72(t) distribution”.