72t Exceptions & SEPP Explained

Would you like a free 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.

 

Complimentary. No Risk. No Obligations.

72t early withdrawal banner

Reasons for a 72(t) Exception

The 72(t) 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  • Returned IRA Contributions: if withdrawn by extended due date of return, or earnings on these returned contributions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)

Reasons for a 72(t) Exception

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)

Get Started with a Free Consultation about
Applying a 72(t) Exception to Your Case

Substantially Equal Periodic Payments, (SEPP)

The IRS has a rule for an early retirement withdrawal tax exemption called a 72t, associated with a “Substantially Equal Periodic Payments (SEPP).” By using the IRS 72t rule, it ELIMINATES the 10% early withdrawal penalty normally due for withdrawals prior to age 59 1/2.

 

For example, let’s say you still work at your job, but you want to retire sooner than later (in this example, let’s pretend that you’re 55 years old). First, you’ll need quit your current job. Second, you ROLL your 401k into an IRA. After completing the rollover, then you apply for a “SEPP.” The IRS will offer you (3) optional payout amounts. The (3) IRS optional payout methods will reveal to you how much the “SEPP” will be, based on your age, the age of your beneficiary, the amount of money you have, the rate (%) used for the calculation and how long they expect you to live (based on IRS’s mortality table).

Below Is an Example of a 72t Distribution & 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
$8445.95/year ($703.83/mo)
$14894.53/year ($1241.21/mo)
$14797.28/year ($1233.11/mo)
Life Expectancy (29.6 Years)
Minimum Distribution Method
Amortization Method
Annuitization Method
72(t) Annual Payments
$8445.95/year ($703.83/mo)
$14894.53/year ($1241.21/mo)
$14797.28/year ($1233.11/mo)
Life Expectancy (29.6 Years)
Minimum Distribution Method
Amortization Method
Annuitization Method

Speak with a Professional before Exploring a 72t Exception

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.

 

Not all (Financial Advisors, CPA’s, Attorney’s or otherwise) know about this little known 72(t) IRS rule. Also, NOT ALL companies know how to do a 72t, or how to set it up properly, or even have the mechanical or electronic means available, to do such distributions! Very few fixed annuities will work (but some may) because most fixed and Indexed annuities do not allow withdrawals during the first year of the contract and/or greater withdrawals than the earnings growth. Also, most IRA owners want to withdraw more than the growth generated by most fixed and indexed annuities.

Effectively Structuring a 72(t) Distribution

We can provide you examples of the few that will work effectively. Just ask and we can e-mail that information to you. We have effectively set-up 72t distributions for income withdrawals prior to age 59 1/2 many times throughout our 50+ years and it works, if done correctly. It is completely legal and anyone (at any age) can use a 72t The most commonly used (effective) investment vehicles for a 72t are variable annuities.

 

One of the main reasons, is the fact that today’s variable annuities allow you to actively invest your money so it can continue to grow, offer diversification and protection, all at the same time, while you are pulling an income stream from it. Fixed accounts, stock portfolios, CD’s and MOST fixed annuities, are often not the most ideal for doing a 72t. The reason being, as stated previously, that the amount desired to be withdrawn from a 72t often does not adequately match the amount of growth or offer the appropriate amount to be withdrawn. Many companies and many advisors, simply do not know how to properly do a 72t. Work with someone who is experienced and knowledgeable in this very special area.

Is Using a 72(t) Distribution Right for You? Find Out with a Free Consultation.

Planning to Use a 72t?

We have effectively set-up and administered 72t’s for income withdrawals prior to age 59 1/2 MANY TIMES throughout almost 50 years and it works, if done correctly. It is completely legal and ANYONE (at any age) can use a 72t. Once again, many companies and most advisors, simply do not know HOW to properly structure and administer a 72t. Work with a firm who is experienced, knowledgeable and specializes in this specific type of planning.

 

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: your age, your beneficiaries age, the amount of money in your retirement plan and using the current IRS rates with our 72t calculator, we will prepare an income estimate for you.  FREE.  No Obligation.
Get a Free Estimate Today!

 

NOTE: This early withdrawal provision also works for non-IRA annuities to eliminate the IRS 10% early withdrawal penalty. It’s called a 72(q) for non-qualified annuities and works the same as a 72t for IRA’s. Learn How a 72t Works or if you Got a Question?

 

NOTE: Investment return and principal value will fluctuate, and shares/units, when redeemed, may be worth more or less than their original cost. Past performance is no guarantee of future results. Dollar Cost Averaging does not assure a profit nor does it protect against loss in declining markets. The above reference is NOT an offer to sell a product or service. Neither Spivak Financial Group or Centaurus Financial Inc. offers legal advice. Please consult with a Tax Professional for your personal tax consequences.

Speak with a Professional before Initiating a Rollover or Using a 72t Distribution

Completing your 72(t) 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 72(t) process. CD’s can not be used effectively as an investment vehicle for a 72t distribution.

 

Not all (Financial Advisors, CPA’s, Attorney’s or otherwise) know about this little known 72(t) IRS rule. Also, NOT ALL companies know how to do a 72t, or how to set it up properly, or even have the mechanical or electronic means available, to do such distributions! Very few fixed annuities will work (but some may) because most fixed and Indexed annuities do not allow withdrawals during the first year of the contract and/or greater withdrawals than the earnings growth. Also, most IRA owners want to withdraw more than the growth generated by most fixed and indexed annuities.

Effectively Structuring a 72(t) Distribution

We can provide you examples of the few that will work effectively. Just ask and we can e-mail that information to you. We have effectively set-up 72t distributions for income withdrawals prior to age 59 1/2 many times throughout our 50+ years and it works, if done correctly. It is completely legal and anyone (at any age) can use a 72t The most commonly used (effective) investment vehicles for a 72t are variable annuities.

 

One of the main reasons, is the fact that today’s variable annuities allow you to actively invest your money so it can continue to grow, offer diversification and protection, all at the same time, while you are pulling an income stream from it. Fixed accounts, stock portfolios, CD’s and MOST fixed annuities, are often not the most ideal for doing a 72t. The reason being, as stated previously, that the amount desired to be withdrawn from a 72t often does not adequately match the amount of growth or offer the appropriate amount to be withdrawn. Many companies and many advisors, simply do not know how to properly do a 72t. Work with someone who is experienced and knowledgeable in this very special area.

Sign Up for Your Free Consultation about
How to Use a 72(t) Distribution

Is Using a 72(t) Distribution Right for You? Find Out with a Free Consultation.

Contact Us

Feel free to call us directly...

1 (844) PROF-72T

Monday - Friday,
9am - 6pm

Call Now
Our Email

Send us a question anytime...
72tProfessor@spivakfinancial.com
and we’ll get back to you
as soon as possible.

Send Email
Our Location

Located at...
8160 E Butherus Drive
Suite #5,
Scottsdale, AZ 85260

See Map

Get Help

Are you looking for help with a 72(t) strategy?

72(t) Professor72(t) Specialist