72t Exceptions Explained
The 72t distribution will NOT be subject to the 10% additional early distribution tax in the following circumstances:
- Age: after participant/IRA owner reaches age 59½
- Automatic Enrollment: permissive withdrawals from a plan with auto enrollment features
- Corrective Distributions: corrective distributions (and associated earnings) of excess contributions, excess aggregate contributions and excess deferrals, made timely.
- Death: after death of the participant/IRA owner
- Disability: total and permanent disability of the participant/IRA owner
- Domestic Relations: to an alternate payee under a Qualified Domestic Relations Order
- Education: qualified higher education expenses
- Equal Payments: series of substantially equal payments
- ESOP: dividend pass through from an ESOP
- Homebuyers: qualified first-time homebuyers, up to $10,000
- Levy: because of an IRS levy of the plan
- Medical: amount of unreimbursed medical expenses (>7.5% AGI; after 2012, 10% if under age 65), or health insurance premiums paid while unemployed.
- Military: certain distributions to qualified military reservists called to active duty
- Returned IRA Contributions: if withdrawn by extended due date of return, or earnings on these returned contributions
- Rollovers: in-plan Roth rollovers or eligible distributions contributed to another retirement plan or IRA within 60 days (also see FAQs: Waivers of the 60-Day Rollover Requirement)
- Separation from Service: the employee separates from service during or after the year the employee reaches age 55 (age 50 for public safety employees of a state, or political subdivision of a state, in a governmental defined benefit plan)
SPEAK WITH A PROFESSIONAL BEFORE EXPLORING 72t EXCEPTIONS
Completing your 72t early retirement distribution and documenting your IRS 72t exceptions correctly, will provide a stream of retirement income. But, if it’s done incorrectly, possibly by withdrawing too much and you can end up broke! Plus, the IRS may assess the 10% penalty on all amounts withdrawn, if the IRA account runs out of money before the end of the 72t scheduled time frame. That’s the rule.
Therefore, it’s imperative you work with someone, who has experience with the entire 72t process. CD’s can not be used effectively as an investment vehicle for a 72t distribution.
Would you like an ESTIMATE of what YOUR 401(k), TSP, 403(b), 457 plan or IRA might produce for an income, using a 72t for early withdrawals to eliminate the IRS penalty?
Simply provide us some basic information by clicking the button below, and one of our 72t specialists will calculate the current IRS rates & will prepare an income estimate for you.
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Below Is an Example of a 72t Distribution or SEPP
An individual age 55 (with the same age beneficiary) who has $250,000 and wants to set up a 72t, (using a rate of 4.23% for example) this would be the payout options to choose from:
|72(t) Annual Payments||Life Expectancy (29.6 Years)|
|$8445.95/year ($703.83/mo)||Minimum Distribution Method|
|$14894.53/year ($1241.21/mo)||Amortization Method|
|$14797.28/year ($1233.11/mo)||Annuitization Method|