How is life expectancy determined & what is the 72t interest rate used on a 72t early distribution?
When setting up a 72t early distribution, you should know the IRS life expectancy tables used to calculate a return including the interest rate, which are the following:
- The Uniform Life Table
- The Single Life Table
- The Joint Life and Last Survivor Table
The most common table used is the Uniform Life Table, and all three tables can be found on The Internal Revenue Service website at IRS.
The maximum 72t interest rate that can be used is the greater of 120% of the Federal mid-term annual rates for either of the two months immediately preceding the month in which the distribution begins.
Great news: Effective January 2022, IRS now allows for a rate of up to 5%.
Please note this is NOT the 72t interest rate to expect on the actual investment that the early distribution is coming from. It is simply used to calculate the allowed amount that you can take. Current rates can also be found on IRS.gov website. If you would like help properly structuring your early retirement, please contact us today.